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The minutes show the Fed wants “flexibility” in interest rates as inflation remains a key focus, writes Reuters

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© Reuters. FILE PHOTO: US Federal Reserve Chairman Jerome Powell leaves after confronting reporters at a news conference following a two-day meeting of the Federal Open Market Committee (FOMC) in Washington, US, on June 15, 2022. (Reuters)/Elisabeth Frantz / File Photo

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Written by Howard Schneider

WASHINGTON (Reuters) – Officials at the Federal Reserve’s Dec. 13-14 meeting all agreed that the U.S. central bank should slow the aggressive pace of interest rate hikes, allowing them to continue increasing the cost of credit to control inflation but gradually. A method aimed at reducing risks to economic growth.

Minutes of the meeting, released on Wednesday, showed that policymakers remained focused on controlling the pace of price increases that risked running hotter than expected, and worried about any “misperception” in financial markets that their commitment to fighting inflation was weak.

But officials also acknowledged that they had made “significant progress” over the past year in raising interest rates enough to bring down inflation. As a result, the central bank now needs to balance its fight against rising prices with the risks of slowing the economy too much and “potentially placing the greatest burdens on the most vulnerable” through too high unemployment rates.

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“Most participants emphasized the need to retain flexibility and discretion when moving policy to a more restrictive position,” the minutes said, noting that officials may be willing to scale back quarter-percentage-point increases from January 31 through February. First meeting, but also remained open to a higher-than-expected “final” rate if high inflation persists.

In fact, the minutes put a premium on making clear that the decision to move to smaller interest rate increases should not be interpreted by investors or the general public as a weakening of the Fed’s commitment to returning inflation to its 2% target.

“The participants reaffirmed their strong commitment to returning inflation to the Committee’s (Federal Open Market) target of 2%,” the minutes said. “A number of participants emphasized that it would be important to state clearly that the slowdown in the pace of price increases did not indicate any weakness in the Committee’s determination to achieve its goal of price stability.”

Fight hypertrophy longer

Policymakers agreed to raise interest rates by half a percentage point at a meeting last month, a step back from the three-quarters of a percentage point increases used through most of 2022.

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“No participant anticipated that it would be appropriate to begin lowering the federal funds rate in 2023,” the minutes said.

However, markets moved the other way after the minutes were released. Interest rate futures fell slightly as traders stuck to bets that the Fed would raise its target rate to just 5% in the coming months and then start lowering it in the second half of the year.

Fed officials predicted in December that this rate, currently in the 4.25%-4.50% range, would rise to just over 5% by the end of 2023 and would likely stay there for some time.

How long “restrictive” monetary policy will be needed could become an emerging topic of debate.

US economic projections presented by Federal Reserve staff at a meeting last month indicated that the battle for lower rates may continue longer than expected.

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The Fed staff said recent economic growth has been stronger than previously expected, and as a result economic output is not expected to slow to a below-trend pace and unemployment to rise above the “natural rate” until “near the end of 2024” — a year later. than expected.

Below-trend growth and above-normal unemployment are among the conditions that can slow inflation.

However, for some policymakers the risks to growth have become more pressing, with Fed staff noting that a recession over the next year was a “reasonable alternative.”

“Many participants emphasized” that the Fed, after a year in which it tightened monetary policy at the fastest pace since the 1980s, now had to balance its fight against inflation against the prospect of overriding policy that “could end up being more restrictive than necessary.”

“A slower pace of interest rate increases at this meeting should better allow the committee to assess the progress of the economy… as monetary policy approached a position that was sufficiently restrictive.”

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rejoice. The economic prospects for 2023 are better than you think

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Polls of economists at the end of 2022 in weAnd Euro-zone And United kingdom It was relentlessly grim, peppered with predictions of a recession, higher unemployment, and continuing inflation problems. The head of the International Monetary Fund, Kristalina Georgieva, Speaking of tougher 12 months ago It predicts that a third of the world will suffer from recession. It’s frustrating stuff. Fortunately, these accounts may be wrong. We should all cheer up a bit.

The evidence suggests that economic performance in 2023 will not be as bad as most economists say. We will probably end the year richer, safer and more content than we did at the beginning.

There is no doubt that the global backdrop of 2023 is challenging. Households and businesses have weathered the pandemic, inflation, record energy costs, and food price crisis over the past three years. But the worst effects of it are already over.

Therefore, part of my larger optimism is based on an important and near-universal misunderstanding of economic forecasts. Often, past events are presented as yet to come.

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International Monetary Fund Latest forecast From October, for example, he predicted global growth would drop from 3.2 percent in 2022 to 2.7 percent in 2023. This reinforced Georgieva’s comment that this year would be “tougher than the year we leave behind.” The problem is that the information conveyed by these average annual growth rates does not fit into the reasonable interpretation of most people.

It might surprise you that in the fund’s case, the relatively strong 2022 reading is due to rapid growth at the end of the lockdown in late 2021 and the expectation of weakness for 2023 is primarily due to the energy crisis of the previous year.

Translated into economic activity that only takes place during the year in question – in line with most forecasters’ expectations – the story changes completely. In contrast to next year, the International Monetary Fund expects the global economy to grow by 2.7 percent during 2023, which is significantly more than the 1.7 percent that is believed to have occurred during 2022.

The IMF is not alone in providing key growth forecasts that its officials find difficult to articulate. Organization for Economic Co-operation and Development he said in november That growth in advanced economies will decline in 2023, however Quarterly forecasts From the same publication it appears that it expects the growth of advanced economies to improve in each quarter of this year. Most people would see this as progress rather than regression.

These failures to translate numerical projections into a compelling and accurate narrative should cause us concern. It creates an unnecessarily bleak outlook that has self-fulfilling characteristics.

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Recognizing these supply issues should make us happier by 2023. But few FT readers will fail to notice the second problem with these forecasts: they are outdated. Any assessment for the coming year must take into account two important changes in the assumptions underlying the global outlook.

The first reflects natural gas prices. The IMF and OECD forecasts were prepared in the fall and were based on financial market projections of future natural gas prices at that time. The Organization for Economic Co-operation and Development, for example, has predicted that wholesale gas prices in Europe will average €150 per megawatt-hour over this year and next.

Current market expectations are for prices to be around half that level. The easing of the energy crisis is an impeccable boost to the European economic outlook. Lower energy prices will improve income, growth and fiscal prospects while lowering headline inflation. This is of crucial importance for Europe, which is a large energy importer.

The second change in assumptions must take into account China’s termination of its policy on the non-spread of the coronavirus. The virus is creating misery for many, but deregulation is likely to be positive for both the Chinese and global economic prospects later this year.

India’s devastating delta wave in the spring of 2021 led to a greater than 8 percent drop in gross domestic product in the second quarter of that year, followed by a similar rise in the third quarter and another 5 percent gain in the fourth quarter. After the current wave of infections, China’s economic rebound should be stronger, if anything, because ending forced lockdowns will ease supply chain pressures. Global trade bottlenecks must improve.

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We must of course not get swept up in a wave of optimism. Even with lower inflation, battles between workers, businesses, and taxpayers over accumulated losses from the economic crises of recent years could continue. Olivier Blanchard, former chief economist at the International Monetary Fund, also warned that it could keep price increases too high for a very long time. Likewise, the huge uncertainty about the severity of these conflicts may cause central banks to over-control inflation and undermine economic progress. Macroeconomic policy errors are thus highly likely in 2023.

But uncertainty of this kind is an ongoing fact of life. As the year begins, we can say the following with some confidence. Almost all current forecasts indicate that growth in the global economy is likely to improve in 2023 and the future outlook will remain more optimistic. Contrary to the dismal comments from economists and officials, we should be cautiously optimistic about the coming year.

chris.giles@ft.com

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India’s economic growth slows to 7% in 2022/23, according to a government forecast by Reuters

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© Reuters. FILE PHOTO: People shop for shoes at roadside shops at a market in Mumbai, India August 30, 2016. Photo taken August 30, 2016. REUTERS/Danish Siddiqui/File Photo

By Aftab Ahmed and Nikong Ori

NEW DELHI (Reuters) – India’s government expects economic growth to slow in the fiscal year ending in March as distortions eased from the pandemic and demand for commodities picks up as 2023 approaches.

Gross domestic product is likely to rise 7% this fiscal year, compared to 8.7% a year earlier, the statistics department said in its first estimate for the period that put manufacturing growth at just 1.6%.

The preliminary aggregate forecast is lower than the previous government’s forecast of 8%-8.5%, but higher than the central bank’s 6.8%.

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The government uses these estimates as the basis for its growth and fiscal projections for the next budget, due on February 1. It will be the last full budget before Prime Minister Narendra Modi runs for a rare third term in elections scheduled for the summer. 2024.

Graphics: Growth on the Cards – https://www.reuters.com/graphics/INDIA-ECONOMY/GDP/znvnbzdzxvl/chart.png

India’s economy rebounded after easing COVID-19 restrictions in mid-2022, but the war in Ukraine spurred inflationary pressures, prompting the central bank to reverse the ultra-loose monetary policy it adopted during the pandemic.

It has raised key interest rates by 225 basis points since May to 6.25%, the highest level in three years, and another modest hike is expected early this year.

Since September, economists have lowered their 2022/23 growth forecasts to around 7% due to slowing exports and the risk of high inflation hampering purchasing power.

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Construction was expected to grow by 9.1%, electricity by 9%, and agriculture by 3.5%. Manufacturing and mining growth was expected at 1.6% and 2.4%.

Madan Sabnavis, an economist at Bank of Baroda, said growth in manufacturing has been disappointing with corporate profits shrinking in the second quarter.

India’s nominal growth, which includes inflation, is forecast at 15.4% for 2022/23, up from a previous estimate of 11.1%.

“Nominal GDP growth is higher, which means that the government’s fiscal deficit target will be met,” said Sabanavis.

India remains a relative “bright spot” in the global economy, an International Monetary Fund official said on Friday, but it needs to build on its existing strength in services exports and expand it into job-rich industrial exports.

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It is expected to remain the second fastest growing economy – trailing only Saudi Arabia – among the G20 countries, according to the Organization for Economic Co-operation and Development (OECD).

India’s growth potential is likely to moderate in the fiscal year starting April 1, due among other factors to weak exports, said economist Prangul Bhandari at HSBC Securities and Capital Markets in a note to clients.

“Buoyant, albeit mixed, domestic consumption should help stave off some of the pain caused by weak exports during this period,” said Aditi Nayar, economist at ICRA.

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Rishi Sunak proposes talks with UK union leaders in a bid to stop the strikes

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Rishi Sunak has called on Britain’s trade union leaders for talks on Monday in a bid to find a solution to the disruptive wave of strikes across the UK.

The UK prime minister said in a radio interview on Friday that government departments had written to the unions involved inviting them to start talks on Monday.

Workers including train and bus drivers, nurses and paramedics were taken strike To protest wage cuts in real terms at a time of high inflation.

Sunak had previously said he wanted a “mature conversation” with public sector unions over the next wage settlement for the 2023-2024 financial year.

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The prime minister said he wanted to have talks with unions “about what’s reasonable, what’s reasonable, and what’s responsible” for the country.

Our most urgent economic priority is to reduce cost of living And controlling inflation is the best way to do this to ease the cost of living, not just for nurses but for everyone.

But Sunak’s offer to discuss a wage settlement for next year falls short of union demands for higher settlements for the current financial year.

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