Tag: Prices

IMF warns of higher recession risk and darker global outlook

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WASHINGTON — The International Monetary Fund is once again lowering its projections for global economic growth in 2023, projecting world economic growth lower by $4 trillion through 2026.

Kristalina Georgieva, managing director of the IMF, told an audience at Georgetown University on Thursday that “things are more likely to get worse before it gets better,” saying the Russian invasion of Ukraine that began in February has dramatically changed the IMF’s outlook on the economy.

The ongoing COVID-19 pandemic, rising inflation and worsening climate conditions are also impacting world economies, exacerbating other crises, like food insecurity and high debt levels held by lower-income countries.

“The risks of recession are rising,” she said, adding that the IMF estimates that countries making up one-third of the world economy will see at least two consecutive quarters of economic contraction this or next year.

Georgieva said the institution downgraded its global growth projections already three times. It now expects 3.2% for 2022 and now 2.9% for 2023.

The bleak projections come as central banks around the world raise interest rates in hopes of taming rising inflation. The U.S. Federal Reserve has been the most aggressive in using interest rate hikes as an inflation-cooling tool, though central banks from Asia to England have begun to raise rates this week.

Georgieva said “tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.”

Many countries are already seeing major impacts of the invasion of Ukraine on their economies, and the IMF’s grim projections are in line with other forecasts for declines in growth.

The Organization for Economic Cooperation and Development last week said the global economy is set to lose $2.8 trillion in output in 2023 because of the war.

The projections come after the OPEC+ alliance of oil-exporting countries decided Wednesday to sharply cut production to support sagging oil prices in a move that could deal the struggling global economy another blow and raise politically sensitive pump prices for U.S. drivers just ahead of key national elections in November.

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October 6, 2022
OPEC+ makes big oil cut to boost prices; pump costs may rise

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FRANKFURT, Germany — The OPEC+ alliance of oil-exporting countries on Wednesday decided to sharply cut production to support sagging oil prices, a move that could deal the struggling global economy another blow and raise politically sensitive pump prices for U.S. drivers just ahead of key national elections.

Energy ministers meeting at the Vienna headquarters of the OPEC oil cartel cut production by 2 million barrels per day starting in November at their first face-to-face meeting since the start of the COVID-19 pandemic.

Besides a token trim in oil production last month, the major cut is an abrupt turnaround from months of restoring deep cuts made during the depths of the pandemic and could help alliance member Russia weather a looming European ban on oil imports.

In a statement, OPEC+ said the decision was based on the “uncertainty that surrounds the global economic and oil market outlooks.”

The impact of the production cut on oil prices — and thus the price of gasoline made from crude — will be limited somewhat because OPEC+ members are already unable to meet the quotas set by the group.

The alliance also said it was renewing its cooperation between members of the OPEC cartel and non-members, the most significant of which is Russia. The deal was to expire at year’s end.

The decision comes as oil trades well below its summer peaks because of fears that major global economies such as the U.S. or Europe will sink into recession due to high inflation, rising interest rates meant to curb rising consumer prices, and uncertainty over Russia’s war against in Ukraine.

The fall in oil prices has been a boon to U.S. drivers, who saw lower gasoline prices at the pump before costs recently started ticking up, and for U.S. President Joe Biden as his Democratic Party gears up for congressional elections next month.

White House press secretary Karine Jean-Pierre told reporters Tuesday that the U.S. would not extend releases from its strategic reserve to increase global supplies.

Biden has tried to receive credit for gasoline prices falling from their average June peak of $5.02 — with administration officials highlighting a late March announcement that a million barrels a day would be released from the strategic reserve for six months. High inflation is a fundamental drag on Biden’s approval and has dampened Democrats’ chances in the midterm elections.

Oil supply could face further cutbacks in coming months when a European ban on most Russian imports takes effect in December. A separate move by the U.S. and other members of the Group of Seven wealthy democracies to impose a price cap on Russian oil could reduce supply if Russia retaliates by refusing to ship to countries and companies that observe the cap.

The EU agreed Wednesday on new sanctions that are expected to include a price cap on Russian oil.

Russia “will need to find new buyers for its oil when the EU embargo comes into force in early December and will presumably have to make further price concessions to do so,” analysts at Commerzbank wrote in a note. “Higher prices beforehand — boosted by production cuts elsewhere — would therefore doubtless be very welcome.”

Dwindling prospects for a diplomatic deal to limit Iran’s nuclear program have also lowered prospects for a return of as much as 1.5 million barrels a day in Iranian oil to the market if sanctions are removed.

Oil prices surged this summer as markets worried about the loss of Russian supplies from sanctions over the war in Ukraine, but they slipped as fears about recessions in major economies and China’s COVID-19 restrictions weighed on demand for crude.

International benchmark Brent has sagged as low as $84 in recent days after spending most of the summer months over $100 per barrel.

At its last meeting in September, OPEC+ reduced the amount of oil it produces by 100,000 barrels a day in October. That token cut didn’t do much to boost lower oil prices, but it put markets on notice that the group was willing to act if prices kept falling.

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October 5, 2022
US starts fiscal year with record $31 trillion in debt

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WASHINGTON — The nation’s gross national debt has surpassed $31 trillion, according to a U.S. Treasury report released Tuesday that logs America’s daily finances.

Edging closer to the statutory ceiling of roughly $31.4 trillion — an artificial cap Congress placed on the U.S. government’s ability to borrow — the debt numbers hit an already tenuous economy facing high inflation, rising interest rates and a strong U.S. dollar.

And while President Joe Biden has touted his administration’s deficit reduction efforts this year and recently signed the so-called Inflation Reduction Act, which attempts to tame 40-year high price increases caused by a variety of economic factors, economists say the latest debt numbers are a cause for concern.

Owen Zidar, a Princeton economist, said rising interest rates will exacerbate the nation’s growing debt issues and make the debt itself more costly. The Federal Reserve has raised rates several times this year in an effort to combat inflation.

Zidar said the debt “should encourage us to consider some tax policies that almost passed through the legislative process but didn’t get enough support,” like imposing higher taxes on the wealthy and closing the carried interest loophole, which allows money managers to treat their income as capital gains.

“I think the point here is if you weren’t worried before about the debt before, you should be — and if you were worried before, you should be even more worried,” Zidar said.

The Congressional Budget Office earlier this year released a report on America’s debt load, warning in its 30-year outlook that, if unaddressed, the debt will soon spiral upward to new highs that could ultimately imperil the U.S. economy.

In its August Mid-Session Review, the administration forecasted that this year’s budget deficit will be nearly $400 billion lower than it estimated back in March, due in part to stronger than expected revenues, reduced spending, and an economy that has recovered all the jobs lost during the multi-year pandemic.

In full, this year’s deficit will decline by $1.7 trillion, representing the single largest decline in the federal deficit in American history, the Office of Management and Budget said in August.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget said in an emailed statement Tuesday, “This is a new record no one should be proud of.”

“In the past 18 months, we’ve witnessed inflation rise to a 40-year high, interest rates climbing in part to combat this inflation, and several budget-busting pieces of legislation and executive actions,” MacGuineas said. “We are addicted to debt.”

A representative from the Treasury Department was not immediately available for comment.

Sung Won Sohn, an economics professor at Loyola Marymount University, said “it took this nation 200 years to pile up its first trillion dollars in national debt, and since the pandemic we have been adding at the rate of 1 trillion nearly every quarter.”

Predicting high inflation for the “foreseeable future,” he said, “when you increase government spending and money supply, you will pay the price later.”

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October 4, 2022
US job openings sink amid higher rates and slower growth

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WASHINGTON — The number of available jobs in the U.S. plummeted in August compared with July, a sign that businesses may pull back further on hiring and potentially cool chronically high inflation.

There were 10.1 million advertised jobs on the last day of August, the government said Tuesday, down a huge 10% from 11.2 million openings in July. In March, job openings had hit a record of nearly 11.9 million.

Layoffs ticked up in August but remained at a historically low level. And slightly more people quit their jobs.

The sharp drop in job openings will be welcomed by the Federal Reserve. Fed officials have cited the high level of openings as a sign of strong labor demand that has compelled employers to steadily raise pay to attract and keep workers.

Smaller pay raises, if sustained, should ease inflationary pressures. In their effort to combat the worst inflation in 40 years, the central bank has raised its key short-term interest rate to a range of 3% to 3.25%, up sharply from nearly zero as recently as March.

Chair Jerome Powell and other Fed officials hope that their interest rate hikes — the fastest in roughly four decades — will cause employers to pull back on their efforts to hire more people. Fewer job openings, in turn, could reduce the pressure on companies to raise pay to attract and keep workers.

Tuesday’s figures arrive the same week that a key report on jobs and the unemployment rate is set to be released Friday. Economists forecast that it will show that employers added 250,000 jobs in September and that the unemployment rate remained 3.7% for a second straight month.

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October 4, 2022
Asian shares rise after ‘relief rally’ on Wall Street

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TOKYO — Asian shares rose Tuesday, encouraged by a rally in U.S. shares after some weak economic data raised hopes that the Federal Reserve might ease away from aggressive interest rate hikes.

Japan’s benchmark Nikkei 225 added 2.8% in afternoon trading to 26,959.25. South Korea’s Kospi gained 2.5% to 2,209.98.

Australia’s S&P/ASX 200 jumped 3.8% to 6,699.30 after its central bank boosted its benchmark interest rate for a sixth consecutive month to a nine-year high of 2.6%. The Reserve Bank of Australia’s increase of a quarter percentage point to the cash rate was smaller than those at recent monthly meetings.

When the bank lifted the rate by a quarter percentage point at its board meeting in May, it was the first rate hike in more than 11 years. It’s now at its highest point since August 2013, when the bank cut the rate from 2.75% to 2.5%.

Markets in Hong Kong and Shanghai were closed for holidays.

“Asian equities were positive on Tuesday after a corrective session as traders eye potentially oversold market conditions,” Anderson Alves at ActivTrades said in a report.

On Monday, Wall Street soared to its best day in months in a widespread relief rally after some unexpectedly weak data on the economy raised the possibility that the Federal Reserve won’t have to be so aggressive about hiking interest rates.

The S&P 500’s leap of 2.6% to 3,678.43 was its biggest since July, the latest swing for a scattershot market that’s been mostly falling this year on worries about a possible global recession.

The Dow Jones Industrial Average jumped 2.7%, to 29,490.89, and the Nasdaq composite gained 2.3% to 10,815.43.

Stocks took their cue from the bond market, where yields fell to ease some of the pressure that’s been battering markets this year. The yield on the 10-year Treasury, which helps set rates for mortgages and many other kinds of loans, fell to 3.62% from 3.83% late Friday. It got as high as 4% last week after starting the year at just 1.51%.

A report on U.S. manufacturing came in weaker than expected, along with data showing a drop off in construction spending from July to August. That may seem discouraging, but could mean the Federal Reserve can ease off on raising interest rates to beat down the high inflation damaging households’ finances.

By raising rates, the Fed is making it more expensive to buy a house, a car or most anything else purchased on credit. The hope is to slow the economy just enough to starve inflation of the purchases needed to keep prices rising so quickly.

The Fed has already pulled its key overnight interest rate to a range of 3% to 3.25%, up from virtually zero as recently as March. Most traders expect it to be more than a full percentage point higher by early next year.

But stresses are building in financial markets and corporate profits have weakened as central banks around the world hike rates in concert.

The yield on the two-year Treasury, which more closely tracks expectations for Fed action, fell to 4.11% from 4.27% following the weaker-than-expected reports on the economy.

Besides stocks, lower rates also boost prices for everything from cryptocurrencies to gold, which can suddenly look a bit more attractive when bonds are paying less in income.

Stocks of high-growth companies and particularly risky or expensive investments have been the most affected by changes in rates. Bitcoin rallied Monday with the reprieve in yields, while technology stocks did the heaviest lifting to carry the S&P 500. Apple and Microsoft both rose more than 3%.

Monday’s rally came despite an 8.6% drop for Tesla, one of the most influential stocks on Wall Street because of its massive market value. The maker of electric vehicles delivered fewer vehicles from July through September than investors expected.

The latest update on the U.S. jobs market comes on Friday. Along with reports on inflation, the jobs report is one of the most highly anticipated pieces of data on Wall Street each month.

It will be the last jobs report before the Fed makes its next decision on interest rates, scheduled for Nov. 2. Continued strength would give the central bank more leeway to keep hiking. Traders say the likeliest move is a fourth straight increase of a whopping three-quarters of a percentage point, triple the usual move.

In energy trading, benchmark U.S. crude added 23 cents to $83.86 a barrel. It jumped Monday amid speculation big oil-producing countries could soon announce cuts to production. Shares of energy-producing companies made big gains. Exxon Mobil leaped 5.3%, and Chevron climbed 5.6%. Brent crude, the international standard, added 42 cents to $89.28 a barrel.

In currency trading, the U.S. dollar inched up to 144.84 Japanese yen from 144.81 yen. The euro cost 98.28 cents, inching down from 98.40 cents.

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Yuri Kageyama is on Twitter https://twitter.com/yurikageyama

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October 3, 2022
‘The Fed is breaking things’ – Here’s what has Wall Street on edge as risks rise around the world

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Jerome Powell, chairman of the US Federal Reserve, during a Fed Listens event in Washington, D.C., US, on Friday, Sept. 23, 2022.

Al Drago | Bloomberg | Getty Images

As the Federal Reserve ramps up efforts to tame inflation, sending the dollar surging and bonds and stocks into a tailspin, concern is rising that the central bank’s campaign will have unintended and potentially dire consequences.

Markets entered a perilous new phase in the past week, one in which statistically unusual moves across asset classes are becoming commonplace. The stock selloff gets most of the headlines, but it is in the gyrations and interplay of the far bigger global markets for currencies and bonds where trouble is brewing, according to Wall Street veterans.

After being criticized for being slow to recognize inflation, the Fed has embarked on its most aggressive series of rate hikes since the 1980s. From near-zero in March, the Fed has pushed its benchmark rate to a target of at least 3%. At the same time, the plan to unwind its $8.8 trillion balance sheet in a process called “quantitative tightening,” or QT — allowing proceeds from securities the Fed has on its books to roll off each month instead of being reinvested — has removed the largest buyer of Treasurys and mortgage securities from the marketplace.

“The Fed is breaking things,” said Benjamin Dunn, a former hedge fund chief risk officer who now runs consultancy Alpha Theory Advisors. “There’s really nothing historical you can point to for what’s going on in markets today; we are seeing multiple standard deviation moves in things like the Swedish krona, in Treasurys, in oil, in silver, like every other day. These aren’t healthy moves.”

Dollar’s warning

For now, it is the once-in-a-generation rise in the dollar that has captivated market observers. Global investors are flocking to higher-yielding U.S. assets thanks to the Fed’s actions, and the dollar has gained in strength while rival currencies wilt, pushing the ICE Dollar Index to the best year since its inception in 1985.

“Such U.S. dollar strength has historically led to some kind of financial or economic crisis,” Morgan Stanley chief equity strategist Michael Wilson said Monday in a note. Past peaks in the dollar have coincided with the the Mexican debt crisis of the early 1990s, the U.S. tech stock bubble of the late 90s, the housing mania that preceded the 2008 financial crisis and the 2012 sovereign debt crisis, according to the investment bank.

The dollar is helping to destabilize overseas economies because it increases inflationary pressures outside the U.S., Barclays global head of FX and emerging markets strategy Themistoklis Fiotakis said Thursday in a note.

The “Fed is now in overdrive and this is supercharging the dollar in a way which, to us at least, was hard to envisage” earlier, he wrote. “Markets may be underestimating the inflationary effect of a rising dollar on the rest of the world.”

It is against that strong dollar backdrop that the Bank of England was forced to prop up the market for its sovereign debt on Wednesday. Investors had been dumping U.K. assets in force starting last week after the government unveiled plans to stimulate its economy, moves that run counter to fighting inflation.

The U.K. episode, which made the Bank of England the buyer of last resort for its own debt, could be just the first intervention a central bank is forced to take in coming months.

Repo fears

There are two broad categories of concern right now: Surging volatility in what are supposed to be the safest fixed income instruments in the world could disrupt the financial system’s plumbing, according to Mark Connors, the former Credit Suisse global head of risk advisory who joined Canadian digital assets firm 3iQ in May.

Since Treasurys are backed by the full faith and credit of the U.S. government and are used as collateral in overnight funding markets, their decline in price and resulting higher yields could gum up the smooth functioning of those markets, he said.

Problems in the repo market occurred most recently in September 2019, when the Fed was forced to inject billions of dollars to calm down the repo market, an essential short-term funding mechanism for banks, corporations and governments.

“The Fed may have to stabilize the price of Treasurys here; we’re getting close,” said Connors, a market participant for more than 30 years. “What’s happening may require them to step in and provide emergency funding.”

Doing so will likely force the Fed to put a halt to its quantitative tightening program ahead of schedule, just as the Bank of England did, according to Connors. While that would confuse the Fed’s messaging that it’s acting tough on inflation, the central bank will have no choice, he said.

`Expect a tsunami’

The second worry is that whipsawing markets will expose weak hands among asset managers, hedge funds or other players who may have been overleveraged or took unwise risks. While a blow-up could be contained, it’s possible that margin calls and forced liquidations could further roil markets.

“When you have the dollar spike, expect a tsunami,” Connors said. “Money floods one area and leaves other assets; there’s a knock-on effect there.”

The rising correlation among assets in recent weeks reminds Dunn, the ex-risk officer, of the period right before the 2008 financial crisis, when currency bets imploded, he said. Carry trades, which involve borrowing at low rates and reinvesting in higher-yielding instruments, often with the help of leverage, have a history of blow ups.

“The Fed and all the central bank actions are creating the backdrop for a pretty sizable carry unwind right now,” Dunn said.

The stronger dollar also has other impacts: It makes wide swaths of dollar-denominated bonds issued by non-U.S. players harder to repay, which could pressure emerging markets already struggling with inflation. And other nations could offload U.S. securities in a bid to defend their currencies, exacerbating moves in Treasurys.

So-called zombie companies that have managed to stay afloat because of the low interest rate environment of the past 15 years will likely face a “reckoning” of defaults as they struggle to tap more expensive debt, according to Deutsche Bank strategist Tim Wessel.

Wessel, a former New York Fed employee, said that he also believes it’s likely that the Fed will need to halt its QT program. That could happen if funding rates spike, but also if the banking industry’s reserves decline too much for the regulator’s comfort, he said.

Fear of the unknown

Still, just as no one anticipated that an obscure pension fund trade would ignite a cascade of selling that cratered British bonds, it is the unknowns that are most concerning, says Wessel. The Fed is “learning in real time” how markets will react as it attempts to rein in the support its given since the 2008 crisis, he said.

“The real worry is that you don’t know where to look for these risks,” Wessel said. “That’s one of the points of tightening financial conditions; it’s that people that got over-extended ultimately pay the price.”

Ironically, it is the reforms that came out of the last global crisis that have made markets more fragile. Trading across asset classes is thinner and easier to disrupt after U.S. regulators forced banks to pull back from proprietary trading activities, a dynamic that JPMorgan Chase CEO Jamie Dimon has repeatedly warned about.

Regulators did that because banks took on excessive risk before the 2008 crisis, assuming that ultimately they’d be bailed out. While the reforms pushed risk out of banks, which are far safer today, it has made central banks take on much more of the burden of keeping markets afloat.

With the possible exception of troubled European firms like Credit Suisse, investors and analysts said there is confidence that most banks will be able to withstand market turmoil ahead.

What is becoming more apparent, however, is that it will be difficult for the U.S. — and other major economies — to wean themselves off the extraordinary support the Fed has given it in the past 15 years. It’s a world that Allianz economic advisor Mohamed El-Erian derisively referred to as a “la-la land” of central bank influence.

“The problem with all this is that it’s their own policies that created the fragility, their own policies that created the dislocations and now we’re relying on their policies to address the dislocations,” Peter Boockvar of Bleakley Financial Group said. “It’s all quite a messed-up world.”

Correction: An earlier version misstated the process of quantitative tightening.

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October 1, 2022
Newsom relaxes refinery rules as California gas prices soar

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SACRAMENTO, Calif. — California Gov. Gavin Newsom on Friday announced that oil refineries could start selling more polluting winter-blend gasoline ahead of schedule to ease soaring fuel prices, directly contradicting his own goals for reducing climate pollutants.

The average cost of a gallon of gas was $6.30 in California on Friday, far above the national average of $3.80, according to AAA. Newsom administration officials said the difference between state prices and the national average has never been larger.

The Democratic governor also called on state lawmakers to pass a new tax on oil company profits and return the money to California taxpayers. Lawmakers don’t return to the Capitol until January, Newsom’s office provided few details on the proposal.

“They’re ripping you off,” he said of the oil industry in a video posted to Twitter.

Oil industry representatives said it is state regulations that cause higher prices in California than the rest of the country. The summer blend of gasoline that refineries are required by law to produce in the hotter months costs more money to make but is designed to limit pollutants like smog. Most refineries can’t switch to the winter blend until November.

Switching from the summer to winter blend would likely save consumers 15 to 20 cents per gallon, said Doug Shupe, a spokesman for the Southern California Automobile Club, an affiliate of AAA. Gas prices in Los Angeles are close to breaking a record of $6.46 set in June, he said.

“If these prices go up to $7 a gallon, a 15-cent drop is not really going to mean much to drivers,” Shupe said.

Prices are spiking in part due to limited supply because some oil refineries are offline due to routine maintenance or other problems, he said. The California Air Resources Board, which regulates refineries, said high prices could also be due to part to a refinery fire and Hurricane Ian.

It’s the latest spat between Newsom and the oil industry, which holds political and economic sway in California despite the state’s aggressive climate policies. But Newsom’s dual actions Friday also illustrate the complicated reality Newsom faces as he tries to wean the state off oil and gas while responding to economic reality.

Earlier this year, for example, Newsom’s administration turned to generators and power plants that run on fossil fuels to help avoid rolling power blackouts during a heat wave.

By urging air regulators to let oil companies switch to a winter blend earlier, Newsom is acknowledging that state rules play a role in prices, said Kara Greene, a spokeswoman for the Western States Petroleum Association.

Refineries typically perform maintenance in the spring or fall as they prepare to switch fuel blends, she said. It will take time for refineries to prepare the winter blend, and Newsom’s order may have little immediate effect, she said. If Newsom truly wanted to lower prices, he could suspend the state’s gas tax or relax other regulations, she said.

“It’s a conscious decision to try and put the responsibility back on the oil industry,” she said.

Newsom said he expected the relaxation of refinery rules to increase supplies by 5% to 10% because refiners have already started to produce and store the gas.

“Any impacts on air quality caused by this action are expected to be minimal and outweighed by the public interest in temporarily relaxing” the limits, the air board said in a statement.

Starting in January, oil companies will be required to disclose their monthly profits to the state under legislation Newsom recently signed. Consumer Watchdog called on Newsom earlier this week to call a special legislative session to approve a tax on those profits.

Jamie Court, the group’s president, said he applauded Newsom’s efforts to deal with “an industry that’s out of control.”

Democratic leaders in the state Legislature said a windfall tax on oil profits deserves “strong consideration,” while Republicans said Newsom should immediately suspend the state gas tax to provide relief.

Major oil companies saw record profits this summer, and the price of crude oil has dropped since the end of the summer.

The California Energy Commission on Friday wrote a letter to executives of five major oil companies asking why prices rose so dramatically, what actions the state could take to lower prices and why refinery inventory levels have dropped.

Greene, of the petroleum association, said California regulations raise the price of oil by just under $1 in California, but other observers say its lower. Court, of Consumer Watchdog, says its around 60 cents, while Severin Borenstein, an energy economist with the University of California, Berkeley, says its closer to 70 cents.

Borenstein has also identified an unexplained surcharge that he says has caused Californians billions of dollars since 2015.

Newsom in 2019 directed the state attorney general to look into whether oil companies were overcharging Californians. Attorney General Rob Bonta has said his office is still investigating.

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October 1, 2022
Wall Street drifts near 2022 low as dismal week, month close

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NEW YORK — Wall Street is drifting around its worst levels in almost two years Friday as the end nears for what’s been a miserable month for markets around the world.

The S&P 500 was virtually unchanged in midday trading after flipping between small losses and gains through the morning. It’s hovering around its lowest level since November 2020, and it’s on pace to close out its sixth weekly loss in the last seven, one of its worst months since the early 2020 coronavirus crash and its third straight losing quarter.

The Dow Jones Industrial Average was down 95 points, or 0.3%, at 29,130, as of noon Eastern time, and the Nasdaq composite was 0.4% higher.

The main reason for this year’s struggles for financial markets has been fear about a possible recession, as interest rates soar in hopes of beating down the high inflation that’s swept the world.

The Federal Reserve has been at the forefront of the global campaign to slow economic growth and hurt job markets just enough to undercut inflation but not so much that it causes a recession. More data arrived Friday to suggest the Fed will keep its foot firmly on the brakes on the economy, raising the risk of its going too far and causing a downturn.

The Fed’s preferred measure of inflation showed prices rising even faster than economists expected last month, while spending by consumers rebounded. That should keep the Fed on track to keep raising rates and hold them at high levels a while, as it’s loudly and repeatedly promised to do.

Vice Chair Lael Brainard was the latest Fed official on Friday to insist it won’t pull back on rates prematurely. That helped to keep snuffed out hopes on Wall Street for a “pivot” toward easier rates as the economy slows.

“At this point, it’s not a matter of if we’ll have a recession, but what type of recession it will be,” said Sean Sun, portfolio manager at Thornburg Investment Management.

Higher interest rates knock down one of the main levers that set prices for stocks. The other also looks to be under threat as the slowing economy, high interest rates and other factors weigh on corporate profits.

Nike slumped 11.8% in what could be its worst day in two decades after it said its profitability weakened during the summer because of discounts needed to clear suddenly overstuffed warehouses. The amount of shoes and gear in Nike’s inventories swelled by 44% from a year earlier. This year’s powerful surge for the U.S. dollar against other currencies also hurt the company. Its worldwide revenue rose only 4%, instead of the 10% it would have if currency values had remained the same.

Nike isn’t the only company to see its inventories balloon. So have several big-name retailers, and such bad news for businesses could actually mean some relief for shoppers if it leads to more discounts. It echoed some glimmers of encouragement buried within Friday’s report on the Fed’s preferred gauge of inflation. That showed some slowing of inflation for goods, even as price gains kept accelerating for services.

Another report on Friday also offered a glimmer of hope. A measure of consumer sentiment showed U.S. expectations for future inflation came down in September. That’s key for the Fed because expectations for higher inflation among households can create a debilitiating, self-reinforcing cycle that worsens it.

Treasury yields eased a bit on Friday, letting off some of the pressure that’s built on markets.

The yield on the 10-year Treasury fell to 3.73% from 3.79% late Thursday. The two-year yield, which more closely tracks expectations for Fed action, sank to 4.13% from 4.19%.

Still, a long list of other worries continues to hang over global markets, including increasing tensions between much of Europe and Russia following the invasion of Ukraine. A controversial plan to cut taxes by the U.K. government also sent bond markets spinning on fears it could make inflation even worse. Bond markets calmed a bit after the Bank of England pledged mid-week to buy however many U.K. government bonds are needed to bring yields back down.

The stunning and swift rise of the U.S. dollar against other currencies, meanwhile, raises the risk of creating so much stress that something cracks somwhere in global markets.

Stocks around the world were mixed after a report showed that inflation in the 19 countries that use Europe’s euro currency spiked to a record and data from China said that factory activity weakened there.

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AP Business Writers Joe McDonald and Matt Ott contributed.

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September 30, 2022
India raises interest rate to 5.90% to tame inflation

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FILE – Reserve Bank of India (RBI) Governor Shaktikanta Das gestures during a press conference after RBI’s bi-monthly monetary policy review meeting in Mumbai, India, on Feb. 6, 2020. India’s central bank on Friday, Sept. 30, 2022, raised its key interest rate by 50 basis points to 5.90% in its fourth hike this year and said the economies of developing countries were confronted with challenges of slowing growth, elevated food and energy prices, debt distress and currency depreciation. (AP Photo/Rajanish Kakade, File)

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September 30, 2022
India raises interest rate to 5.90% to tame inflation

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India’s central bank has raised its key interest rate to 5.90% and said developing economy were facing slowing growth, elevated food and energy prices, debt distress and currency depreciation

NEW DELHI — India’s central bank on Friday raised its key interest rate by 50 basis points to 5.90% in its fourth hike this year and said developing economies were facing challenges of slowing growth, elevated food and energy prices, debt distress and currency depreciation.

Reserve Bank of India Governor Shaktikanta Das projected inflation at 6.7% in the current fiscal year which runs to next March. June was the sixth consecutive month with inflation above the central bank’s tolerance level of 6%, he said in a statement after a meeting of the bank’s monitoring committee.

He said the central bank will remain focused on the withdrawal of the accommodative monetary policy.

The bank’s monetary committee slashed the real economic growth forecast to 7% for the current financial year from 7.2% forecast in August. The economic growth for the first quarter of the next financial year is expected around 6.7%.

Das said the world has been confronted with one crisis after another, but India has withstood shocks from the coronavirus pandemic and the conflict in Ukraine.

Das also said the Indian rupee has depreciated by 4% since April against 14% appreciation in the U.S. dollar. “The rupee has fared better than many other currencies” and the Reserve Bank Of India’s foreign exchange reserves umbrella remains strong, he said.

The Indian rupee has plunged to an all-time low of 81.58 rupees to one U.S. dollar.

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September 30, 2022
Fewer people seek US unemployment aid amid solid hiring

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WASHINGTON — The number of Americans filing for jobless benefits dropped last week, a sign that few companies are cutting jobs despite high inflation and a weak economy.

Applications for unemployment benefits for the week ending Sept. 24 fell by 16,000 to 193,000, the Labor Department reported Thursday. That is the lowest level of unemployment claims since April. Last week’s number was revised down by 4,000 to 209,000.

Jobless aid applications generally reflect layoffs. The current figures are very low historically and suggest Americans are benefiting from an unusually high level of job security. A year ago this week, 376,000 people applied for benefits.

The economy shrank in the first half of the year, the government said in a separate report Thursday on gross domestic product, the broadest measure of the economy’s output.

Yet employers, who have struggled to rehire after laying off 22 million workers at the height of the pandemic, are still looking to fill millions of open jobs. There are currently roughly two open positions for every unemployed worker, near a record high.

With companies desperate for workers, they are much more likely to hold onto their current staff.

Employers are also offering higher pay and benefits to attract and keep employees. Those higher salaries are contributing to inflation pressures.

The Federal Reserve is aiming to bring down inflation by rapidly raising its key interest rate, which is currently in a range of 3% to 3.25%. A little more than six months ago, that rate was near zero. The sharp rate hikes have pushed up mortgage rates and other borrowing costs. The Fed hopes that higher interest rates will slow borrowing and spending and drive inflation down towards its 2% target.

Fed officials are increasingly warning that the unemployment rate will likely have to rise as part of their fight against rising prices. If the number of unemployment claims drops, as it did last week, it suggests the Fed may have to raise rates even higher than it plans to slow the economy.

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This has been corrected to show that the level of unemployment benefits applications is the lowest since April, rather than May.

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September 29, 2022
Bulgaria to hold election overshadowed by war in Ukraine

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SOFIA, Bulgaria — Bulgarians will go to the polls for the fourth time in less than two years in a general election overshadowed this time by the war in Ukraine, rising energy costs and galloping inflation.

Pollsters expect that voters’ fatigue and disillusionment with the political system will result in low turnout and a fragmented parliament where populist and pro-Russia groups could increase their representation.

The early election comes after a coalition led by pro-Western Prime Minister Kiril Petkov lost a no-confidence vote in June. He claimed that Moscow used “hybrid war” tactics to bring down his government after it refused to pay gas bills in rubles and ordered the expulsion of 70 Russian diplomatic staff from Bulgaria.

The latest opinion polls suggest that up to seven parties could pass the 4% threshold to enter parliament in a contested vote on Sunday.

Despite a decrease in support for the GERB party of ex-Prime Minister Boyko Borissov in previous elections, it is tipped now to finish first. Analysts explain that the shift is likely because of voters’ reluctance to accept change in times of crises and a preference to chose a party they are familiar with.

Parvan Simeonov, a Sofia-based political analyst for Gallup International, said that the war in Ukraine has a strong influence on this election.

“While at previous polls the division was for and against the model of governance of the last 10 years personified by GERB and Boyko Borissov, the main issues now are stabilization, keeping prices low and dealing with the consequences of the war,” Simeonov told The Associated Press.

“The main division in the country now is between East and West on the political map, rather than between status quo and change,” he added.

Still, the predicted percentage won’t be enough for Borissov’s party to form a one-party government, and the chances for a GERB-led coalition are slim as it is blamed for corruption by almost all other opponents.

A recent Gallup International survey ranked GERB first with 25.9%, followed by its main rival — Petkov’s We Continue the Change party with 19.2%.

Borissov, addressing party activists at the last campaign event in Sofia, was positive that GERB would score a convincing victory.

“That’s the only solution for Bulgaria. We have the rare chance to have a stable government,” said the 63-year-old ex-premier, who is vying for a fourth term in office.

His main rival, Kiril Petkov, is also confident that Sunday’s vote will yield positive results for his party.

“I certainly expect us to be the first political power. The goal is to have a majority in the next parliament together with the other two parties — Democratic Bulgaria and the Socialist Party,” he told the AP.

The war in Ukraine was among the main topics in the campaign and calls by the leader of the pro-Russia party Vazrazhdane, Kostadin Kostadinov, for “full neutrality” of Bulgaria in this war are attracting many voters as latest opinion polls predict that the group would gain 11.3% of the votes, up from 4.9% at the previous election.

Deep conflicts between the main parties make it almost impossible to form a viable coalition government, which would prolong the political impasse and add more economic woes in the poorest European Union member country.

Simeonov sees a possible solution in forming a Cabinet of experts with a limited term.

“The other possible option would be no government and go to new elections,” he said.

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September 29, 2022
Asian stocks follow Wall St higher after UK calms markets

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BEIJING — Asian stock markets followed Wall Street higher Thursday after Britain’s central bank moved forcefully to stop a budding financial crisis.

Market benchmarks in Hong Kong, Seoul and Sydney added more than 1%. Shanghai and Tokyo also rose. Oil prices edged lower after jumping by more than $3 per barrel the previous day.

Wall Street’s benchmark S&P 500 index surged 2% on Wednesday for its biggest gain in seven weeks after the Bank of England announced it would buy as many government bonds as needed to restore order to financial markets.

That helped to calm investor fears that planned British tax cuts would push up already high inflation. That had caused the value of the British pound to fall to its lowest level since the 1970s and bond prices to plunge.

The Shanghai Composite Index rose 0.8% to 3,068.87 and the Nikkei 225 in Tokyo gained 0.6% to 26,341.76. The Hang Seng in Hong Kong jumped 1.3% to 17,477.97.

The Kospi in Seoul gained 1.1% to 2,193.82 and Sydney’s S&P ASX 200 rose 1.6% to 6,566.80.

New Zealand and Southeast Asian markets also advanced.

On Wall Street, the S&P 500 rose to 3,719.04 after the Bank of England said it would buy bonds over the next two weeks to stop a slide in prices. Investors were rattled by plans for 45 billion pounds ($48 billion) of tax cuts with no spending reductions.

The central bank earlier warned crumbling confidence in the economy posed a “material risk to U.K. financial stability.” The International Monetary Fund took the rare step of urging a member of the Group of Seven advanced economies to abandon its plan for tax cuts and more borrowing.

The Dow Jones Industrial Average rallied 1.9% to 29,683.74. The Nasdaq composite climbed 2.1% to 11,051.64.

Despite Wednesday’s gain, the S&P 500 is down more than 20% from its Jan. 3 record, which puts it in what traders call a bear market.

Forecasters see more turbulence ahead due to worries about a possible recession, higher interest rates and even higher inflation.

The yield on the 10-year U.S. Treasury, or the difference between its market price and the payout if held to maturity, briefly exceeded 4% on Wednesday, its highest level in a decade.

Investor fears are growing that aggressive interest rate hikes this year by the Federal Reserve and central banks in Europe and Asia to cool inflation that is at multi-decade highs might tip the global economy into recession.

The investment giant Vanguard puts the chance of a U.S. recession at 25% this year and at 65% next year if the Fed follows through on expectations it will raise rates again and keep them elevated through next year.

In energy markets, benchmark U.S. crude lost 32 cents to $81.83 per barrel in electronic trading on the New York Mercantile Exchange. The contract surged $3.65 on Wednesday to $82.15. Brent crude, the price basis for international oils, shed 30 cents to $87.75 per barrel in London. It gained $3.05 the previous session to $89.32.

The dollar gained to 144.32 yen from Wednesday’s 143.96 yen. The euro declined to 96.82 cents from 97.43 cents.

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September 29, 2022
Fed officials call for more rate hikes to fight inflation

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WASHINGTON (AP) — The Federal Reserve will have to keep boosting its benchmark interest rate to a point that raises unemployment and gets inflation down from unusually high levels, two officials said in separate remarks Monday.

Susan Collins, the new president of the Federal Reserve Bank of Boston, endorsed Fed projections released last week that signaled its benchmark interest rate would rise to 4.6% by next year, up sharply from about 3.1% now.

Getting inflation down will “require slower employment growth and a somewhat higher unemployment rate,” Collins said in a speech to the Greater Boston Chamber of Commerce.

Later Monday, Cleveland Fed President Loretta Mester said the Fed’s short-term rate would have to stay higher for longer than previously expected, regardless of the uncertainties surrounding the economy, such as Russia’s invasion of Ukraine and ongoing supply chain difficulties.

“When there’s a lot of uncertainty, it can be better for policymakers to actually act more aggressively, because aggressive action and pre-emptive action can prevent the worst-case outcomes from happening,” she said.

Mester also said she expects higher interest rates will raise unemployment, but disagreed with a forecast by Bank of America that the unemployment rate would rise to 5.5%.

“I do expect the unemployment rate to rise, but not to that extent,” she said.

The comments from both officials added to an ongoing debate about how badly the Federal Reserve’s rate hikes — the fastest in more than 40 years — will hurt the economy. By lifting its benchmark rate, the Fed is pushing up the cost of a wide range of consumer and business loans, including for mortgages, auto loans, and credit cards.

Collins said that, while worries are rising about a recession, “the goal of a more modest slowdown, while challenging, is achievable.”

Also Monday, stocks fell for the fifth straight day and longer-term interest rates rose amid growing fears of a global recession. The yield on the 10-year Treasury, which influences mortgage rates, jumped to 3.89% from 3.69%.

Fed officials hope their rate hikes will achieve a “soft landing” by slowing consumer and business spending enough to bring down inflation but not so much as to cause a recession.

Yet many economists are increasingly skeptical that such an outcome is likely. The Fed has lifted its key rate to a range of 3% to 3.25%, the highest in 14 years, even as the U.S. economy has already slowed. That could cause a recession in the U.S. next year, economists fear.

In a question-and-answer session after her speech, Collins also said that inflation, which reached 9.1% in June from a year earlier and has since fallen to 8.3%, “perhaps may have peaked.”

But Mester said she did not see any such signs.

“Before I conclude that inflation has even peaked, I am going to have to see several months of declines in the readings,” she said.

At a policy meeting last week, the Fed lifted its short-term rate by three-quarters of a point for the third straight time. Hikes typically are a more modest quarter-point. Fed Chair Jerome Powell, at a news conference after the meeting, said that “the chances of a soft landing are likely to diminish” as the Fed steadily raises borrowing costs.

“No one knows whether this process will lead to a recession or, if so, how significant that recession would be,” Powell said.

One challenge for the Fed is that last week it also released its quarterly economic and interest rate projections. They showed that Fed policymakers expect unemployment to reach 4.4% by the end of next year, up from 3.7% currently.

According to a rule of thumb discovered by the economist Claudia Sahm, every time since World War II that unemployment has risen by a half-percentage point over several months, a recession has followed.

Collins is one of 12 voting members of the Fed’s policymaking committee and is the first Black woman to serve as president of a regional Fed bank. She was sworn in July 1. Collins previously served as a provost and executive vice president at the University of Michigan and served on the board of directors for the Chicago Fed.

Atlanta Fed President Bostic, in an interview Sunday on CBS News’ “Face the Nation,” also said “we need to have a slow down” to get inflation under control.

“But I do think that we’re going to do all that we can at the Federal Reserve to avoid deep, deep pain,” he added.

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September 26, 2022
Inflation, unrest challenge Bangladesh’s ‘miracle economy’

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DHAKA, Bangladesh (AP) — Standing in line to try to buy food, Rekha Begum is distraught. Like many others in Bangladesh, she is struggling to find affordable daily essentials like rice, lentils and onions.

“I went to two other places, but they told me they don’t have supplies. Then I came here and stood at the end of the queue,” said Begum, 60, as she waited for nearly two hours to buy what she needed from a truck selling food at subsidized prices in the capital, Dhaka.

Bangladesh’s economic miracle is under severe strain as fuel price hikes amplify public frustrations over rising costs for food and other necessities. Fierce opposition criticism and small street protests have erupted in recent weeks, adding to pressures on the government of Prime Minister Sheikh Hasina, which has sought help from the International Monetary Fund to safeguard the country’s finances.

Experts say Bangladesh’s predicament is nowhere nearly as severe as Sri Lanka’s, where months’ long unrest led its long-time president to flee the country and people are enduring outright shortages of food, fuel and medicines, spending days in queues for essentials. But it faces similar troubles: excessive spending on ambitious development projects, public anger over corruption and cronyism and a weakening trade balance.

Such trends are undermining Bangladesh’s impressive progress, fueled largely by its success as a garment manufacturing hub, toward becoming a more affluent, middle-income country.

The government raised fuel prices by more than 50% last month to counter soaring costs due to high oil prices, triggering protests over the rising cost of living. That led authorities to order the subsidized sales of rice and other staples by government-appointed dealers.

The latest phase of the program, which began Sept. 1, should help about 50 million people, said Commerce Minister Tipu Munshi.

“The government has taken a number of measures to reduce pressures on low-income earners. That is impacting the market and keeping prices of daily commodities competitive,” he said.

The policies are a stopgap for bigger global and domestic challenges.

The war in Ukraine has pushed higher prices of many commodities at a time when they already were surging as demand recovered with a waning of the coronavirus pandemic. In the meantime, countries like Bangladesh, Sri Lanka and Laos — among many — have seen their currencies weaken against the dollar, adding to the costs for dollar-denominated imports of oil and other goods.

To ease the strain on public finances and foreign reserves, the authorities put a moratorium on big, new projects, cut office hours to save energy and imposed limits on imports of luxury goods and non-essential items, such as sedans and SUVs.

“The Bangladesh economy is facing strong headwinds and turbulence,” said Ahmad Ahsan, an economist and director of the Dhaka-based Policy Research Institute, a thinktank. “Suddenly we are back to the era of rolling power cuts, with the taka and the forex reserves under pressure,” he said.

Millions of low-income Bangladeshis, like Begum, whose family of five can barely afford to eat fish or meat even once a month, still struggle to put food on the table.

Bangladesh has made huge strides in the past two decades in growing its economy and fighting poverty. Investments in garment manufacturing have provided jobs for tens of millions of workers, mostly women. Exports of apparel and related products account for more than 80% of its exports.

But with fuel costs so high, authorities shut diesel-run power plants that produced at least 6% of total production, cutting daily power generation by 1,500 megawatts and disrupting manufacturing.

Imports in the last fiscal year, ending in June, 2022, rose to $84 billion, while exports have fluctuated, leaving a record current account deficit of $17 billion.

More challenges are ahead.

Deadlines are fast approaching for repaying foreign loans related to at least 20 mega infrastructure projects, including the $3.6 billion River Padma bridge built by China and a nuclear power plant mostly funded by Russia. Experts say Bangladesh needs to prepare for when repayment schedules ramp up between 2024 and 2026.

In July, in a move economists view as a precautionary measure, Bangladesh sought a $4.5 billion loan from the International Monetary Fund, becoming the third country in South Asia to recently seek its help after Sri Lanka and Pakistan.

Finance Minister A.H.M. Mustafa Kamal said that the government asked the IMF to begin formal negotiations on loans “for balance of payments and budgetary assistance.” The IMF said it was working with Bangladesh to draw up a plan.

Bangladesh’s foreign reserves have been falling, potentially undermining its ability to meet its loan obligations. By Wednesday they had dropped to $36.9 billion from $45.5 billion a year earlier, according to the central bank.

Usable foreign reserves would be about $30 billion, said Zahid Hussain, a former chief economist of the World Bank’s Dhaka office.

“I would not say this is a crisis situation. This is still enough to meet three months of imports, three and half months of imports. But it also means that … you do not have a lot of room for maneuvering on the reserve front,” he said.

Still, despite what some economists say is excessive spending on some costly projects, Bangladesh is better equipped to weather hard times than some other countries in the region.

Its farm sector — tea, rice and jute are major exports — is an effective “shock absorber,” and its economy, four to five times larger than Sri Lanka’s, is less vulnerable to outside calamities like a downturn in tourism.

The economy is forecast to grow at a 6.6% pace this fiscal year, according to the Asia Development Bank’s latest forecast, and the country’s total debt is still relatively small.

“I think in the current context, the most important difference between Sri Lanka and Bangladesh is the debt burden, particularly the external debt,” said Hussain.

Bangladesh’s external debt is under 20% of its gross domestic product, while Sri Lanka’s was around 126% in the first quarter of 2022.

“So, we have some space. I mean debt as a source of stress on the macroeconomy is not much of a much problem yet,” he said.

Waiting in a line to buy subsidized food, 48-year-old Mohammed Jamal said he was not feeling such leeway for his own family.

“It has become unbearable trying to maintain our standard of living,” Jamal said. “Prices are just out of reach for the common people,” he said. “It’s tough living this way.”

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September 23, 2022