Then there are the continuing lockdowns in China, which have reduced the supply of Chinese exports and dampened Chinese demand for imports, both of which are altering global economic patterns. On top of all that is the oil price shock caused by Russia’s war in Ukraine and by the sanctions against Russia.

Until late last year, the Fed said the inflation problem was “transitory.” Its response to an array of global challenges was to flood the U.S. economy and the world with money. It helped to reduce the impact of the 2020 recession in the United States — and it contributed to great wealth-creating rallies in the stock and bond markets.

But now, the Fed has recognized that inflation has gotten out of control and must be significantly slowed.

This is how Mr. Powell put it on Wednesday. “Inflation is much too high and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down,” he said. “We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.”

But its tools for reducing the rate of inflation without causing undue harm to the economy are actually quite crude and limited, he later acknowledged, in response to a reporter’s question. “We have essentially interest rates, the balance sheet and forward guidance, and they’re famously blunt tools,” he said. “They’re not capable of surgical precision.”

As if that were not scary enough, for an operation as delicate as the Fed is attempting, he added: “No one thinks this will be easy. No one thinks it’s straightforward, but there is certainly a plausible path to this, and I do think there, we’ve got a good chance to do that. And, you know, our job is not to rate the chances, it is to try to achieve it. So that’s what we’re doing.”

Well, fine. The Fed needs to make the attempt, but given the precariousness of the situation, the high volatility in financial markets is exactly what I’d expect to see.

The Federal Reserve is committed to continuing to raise the short-term interest rate it controls, the Fed funds rate, to somewhere well above 2.25 percent. Only a few months ago, that rate stood close to zero, and on Wednesday, the Fed raised it to the 0.75 to 1 percent range. The Fed also said it would begin reducing its $9 trillion balance sheet in June by about $1 trillion over the next year, and it continues to issue cautionary “forward guidance” — warnings of the kind that Mr. Powell made on Wednesday.

Watch out, he was essentially saying. Financial conditions are going to get much tougher — as tough as needed to stop inflation from becoming entrenched and deeply destructive. The Fed will be using blunt instruments on the American economy. There will be damage, inevitably. People will lose their jobs when the economy slows. There will be pain, even if it isn’t intended.

In the financial markets, short-term traders are unable to make sense of all this. The day-to-day shifts in the markets are about as informative as the meandering of a squirrel. But for those with long horizons, the outlook is straightforward enough.

A period of wrenching volatility is inescapable. This happens periodically in financial markets, yet those very markets tend to produce wealth for people who are able to ride out this turbulence.

It is important, as always, to make sure you have enough money put aside for an emergency. Then, assess your ability to withstand the impact of nasty headlines and unpleasant financial statements documenting market losses.

Cheap, broadly diversified index funds that track the overall market are being hit hard right now, but I’m still putting money into them. Over the long run, that approach has led to prosperity.

Count on more market craziness until the Fed’s struggle to beat inflation has been resolved. But if history is a guide, the odds are that you will do well if you can get through it.

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Ukraine Live Updates: Amid Hardening Western Resolve, Russia’s Eastern Drive Seems to Stall

Western support of Ukraine hardened Friday as the European Union was poised to approve an embargo on Russian oil, amid fresh assessments that the Russian military’s eastern offensive was faltering, hampered by logistical issues and stiff Ukrainian resistance.

The oil embargo, which would be phased in over a period of some months, is expected to be approved by E.U. ambassadors next week, in a step that should avoid the time-consuming process of gathering heads of state.

Word of the European oil embargo came amid a surge of activity to provide Ukraine with more weapons and support, while shoring up NATO’s defenses, as the Kremlin and Western allies seemed to gird for a drawn-out struggle that risked spilling over Ukraine’s borders.

President Biden’s request Thursday for Congress to approve $33 billion to bolster Ukraine’s arsenal and economy was followed by more commitments by allies. Britain’s military said on Friday that it would deploy 8,000 soldiers to Europe, who were to join tens of thousands of troops from NATO countries in exercises meant to deter further Russian aggression.

While the NATO allies’ commitments to Ukraine grew, the Russian offensive in the Donbas region of eastern Ukraine showed signs of stalling amid heavy battlefield losses and was now “several days behind” schedule, a senior Pentagon official said on Friday.

Britain’s Defense Intelligence agency largely concurred, saying on Friday that “Russian territorial gains have been limited and achieved at significant cost to Russian forces.”

In a video released on Friday, an aide to the Ukrainian president, Volodymyr Zelensky, called the Russian losses “colossal.”

Credit…Daniel Berehulak for The New York Times

The Russian military is trying to encircle Ukrainian troops in the Donbas region by attacking from the north, east and south, but has made little progress, experts and Pentagon officials say.

Victory in the Donbas campaign is vital to Moscow’s plans of carving out a large chunk of southern and eastern Ukraine, from Odesa in the south through Mariupol and up to Kharkiv in the north, and bringing it under Russian domination or even outright annexation.

Moscow now has 92 battalion groups fighting in Donbas — up from 85 a week ago, but still well below the 125 it had in the first phase of the war, the Pentagon official said. Each battalion group has about 700 to 1,000 troops.

Russia still has massive firepower in the region, but many of those battalions were badly damaged in early fighting around the capital, Kyiv, and have been rushed back into action in Donbas before being restored to full fighting strength, the Pentagon official said.

Some military experts gave a grimmer assessment of Russia’s prospects on Friday. Dr. Mike Martin, a visiting fellow in war studies at King’s College London, told the BBC that Russia’s offensive had “sort of fizzled” and that the battle for eastern Ukraine could be over in two to four weeks.

Russia’s early failures, its inability to do “some bold maneuver” in recent fighting and Ukraine’s growing prowess on the battlefield is behind a “major strategic shift” among Western countries, he said, as they expand their aims beyond defending Ukraine to defeating Russia and degrading its military.

In an effort to shore up its forces, Russia has unleashed a barrage of missile and artillery strikes all along the front, continuing its strategy of targeting civilian as well as military targets. “It’s brutality of the coldest and the most depraved sort,” the Pentagon spokesman, John Kirby, told reporters on Friday.

Credit…Tyler Hicks/The New York Times

Ukrainian troops on Friday staged a counterattack in the northern Donbas, retaking Ruska Lozova, a town of around 6,000 people about 12 miles north of Kharkiv that had been occupied by Russian forces since March.

Many of the town’s remaining residents quickly evacuated, taking advantage of the now-open road to Kharkiv. Cars, some riddled with bullet holes, limped into the city, fully packed with luggage, people and pets.

The battle for Ruska Lozova is part of a broader campaign launched by Ukrainian forces in recent weeks to push Russian troops away from Kharkiv, and hopefully put it outside of Russian artillery range. Fighting has been fierce, as the Russian border is roughly 20 miles from the city.

Before the war, Kharkiv was Ukraine’s second-largest city with a population of around 1.4 million people. But it is now a shell of itself, with many of its neighborhoods emptied, after relentless bombardment.

In another sign of Moscow’s sense of urgency, several of the dozen battalion groups that had been fighting in Mariupol were sent to fight in Donbas, the Pentagon official said, even as Ukrainian fighters resisted in the beleaguered city.

The remaining Russian forces continued to pound Mariupol in their struggle to eliminate the last pocket of resistance there. The city’s mayor made a desperate appeal to the international community Friday to save those still trapped at an enormous steel plant that has become the last holdout for Ukrainian fighters and civilians.

Vadym Boychenko, Mariupol’s mayor, said there were more than 600 wounded — including soldiers and civilians — at the Azovstal complex. “They have been there for more than 60 days and they are begging to be saved,” he said, reiterating that supplies of water, medicine and ammunition were quickly depleting. “It is not a matter of days, it’s a matter of hours.”

About 20,000 civilians have been killed, he said, but denied that the city had been fully conquered.

Credit…Daniel Berehulak for The New York Times

The European Union move to ban Russian oil imports, a long-postponed step that has divided the bloc’s members and highlighted their dependence on Russian energy sources, was another sign that Ukraine’s Western allies were dialing up their support by taking difficult measures to punish Russia.

It has taken weeks for E.U. countries to agree on the contours of the measure, and intensive talks will continue over the weekend before the European Commission, the bloc’s executive, puts a finalized proposal on paper for E.U. ambassadors to approve, several E.U. officials and diplomats involved in the process said.

The diplomats and officials spoke on condition of anonymity because they were not authorized to speak publicly on the progress of the sensitive talks.

Russia is Europe’s biggest oil supplier, providing about one quarter of the bloc’s yearly needs, according to 2020 data, about half of Russia’s total exports. As the oil embargo is phased in, officials said the bloc would seek to make up the shortfall by increasing imports from other sources, like Persian Gulf countries, Nigeria, Kazakhstan and Azerbaijan.

That the European Union is now seemingly able to hammer out a compromise among its 27 member countries on a measure this difficult highlights a fundamental miscalculation by President Vladimir V. Putin of Russia in his assault on Ukraine: Instead of sowing discord, the war has forged a united front that is making tough compromises easier to reach.

“More important than the oil embargo is the signal that Europe is united and taking back the initiative,” said Mujtaba Rahman, managing director for Europe at Eurasia Group, a consultancy. Mr. Rahman said that a more abrupt cut to oil imports would have been more painful for Russia, but also too costly for Europe, risking erosion of public support for Ukraine.

If enacted next week, as expected, the oil embargo will be the biggest and most important new step in the E.U.’s sixth package of sanctions since Russia invaded Ukraine. It will also include sanctions against Russia’s biggest bank, Sberbank, which had so far been spared, officials said.

Credit…Finbarr O’Reilly for The New York Times

Germany’s position has been critical in finalizing the new measure; the country, the bloc’s economic leader, was importing about a third of its oil from Russia at the time of the Ukraine invasion. But its influential energy minister, Robert Habeck, said this week that Germany had been able to cut that to just 12 percent in recent weeks, making a full embargo “manageable.”

“The problem that seemed very large for Germany only a few weeks ago has become much smaller,” Mr. Habeck told the news media during a visit to Warsaw on Tuesday. He added, “Germany has come very, very close to independence from Russian oil imports.” But he did not explain how it was able to accomplish that so quickly.

Matina Stevis-Gridneff reported from Brussels and Thomas Gibbons-Neff from Kharkiv, Ukraine. Eric Schmitt contributed reporting from Washington, and Cora Engelbrecht from Krakow, Poland.

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Japan PM advisers urge improvement in current account as yen weakens, article with image

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Women wearing protective masks walk in a shopping district, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan, February 15, 2022. REUTERS/Kim Kyung-Hoon

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TOKYO, April 27 (Reuters) – The advisers to Japanese Prime Minister Fumio Kishida’s top panel urged the government on Wednesday to prevent the current account surplus from shrinking further so as to avoid affecting the currency market.

Japan has long boasted of a hefty current account surplus, a source of confidence in its safe-haven yen, but surging fuel import costs and slowing exports amid the Ukraine crisis are creating a trade deficit, hurting Japan’s balance of payments.

Japan’s shrinking current account surplus helped push the yen to a two-decade low beyond 129 yen earlier this month. It traded around 128 yen to the dollar since then.

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“Persistent declines in current account surplus could impact on financial and currency markets,” the four private-sector advisers at the Council on Economic and Fiscal Policy said.

The 11-member top advisory panel is comprised of ministers, lawmakers and the Bank of Japan Governor Haruhiko Kuroda.

“We must build an economic structure that is resilient to external shocks,” the advisers said in a proposal presented at a meeting of the panel.

The advisers also called for steps including decarbonisation efforts, such as restarting nuclear reactors early and saving energy, exporting agricultural produce and promoting inbound tourists to try to improve the current account balance.

“We must resume entry aimed for tourism in stages in order to help foreign tourists recover from the plunge” caused by the COVID-19 pandemic,” the advisers said.

Japan’s tourism industry has been calling on the government to reopen borders to more visiting tourists, who served as a rare bright spot for the world’s third largest economy until the COVID-19 outbreak over two years ago.

Japan has recently eased entry curbs on business travellers and students as it lifted the daily cap for international arrivals, after it was criticised for strict border measures.

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Reporting by Tetsushi Kajimoto, Editing by William Maclean

Our Standards: The Thomson Reuters Trust Principles.

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COVID expected to hit China economic activity in March data, article with image

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Workers watch as a crane lifts a structure at a construction site in Shanghai, China January 14, 2022. REUTERS/Aly Song

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  • China Q1 GDP growth seen at 4.4%, vs Q4’s 4.0%
  • March data likely deteriorated sharply on COVID lockdowns, April expected to be worse
  • Q1 GDP, March activity data due Monday at 0200 GMT
  • expected to ease policy to cushion slowdown

BEIJING, April 17 (Reuters) – China is expected to report a sharp deterioration in economic activity in March as COVID-19 outbreaks and lockdowns hit consumers and factories, although first-quarter growth may have perked up due to a strong start early in the year.

Data on Monday is expected to show gross domestic product (GDP) grew 4.4 in January-March from a year earlier, a Reuters poll showed, outpacing the fourth-quarter’s 4.0% pace due to a surprisingly solid start in the first two months.

But on a quarterly basis, GDP growth is forecast to fall to 0.6% in the first quarter from 1.6% in October-December, the poll showed, pointing to cooling momentum.

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Separate data on March activity, especially retail sales, is likely to show an even sharper slowdown, analysts say, hit hard by China’s strict efforts to contain its biggest COVID outbreak since the coronavirus was first discovered in the city of Wuhan in late 2019.

Analysts say April readings will likely be worse, with lockdowns in commercial centre Shanghai and elsewhere dragging on. Some economists say the risks of a recession are rising.

The government is due to release the Q1 and March figures on Monday at 0200 GMT, with investor speculation mounting over whether there will be more moves to stimulate the economy.

Late on Friday, China’s central bank said it would cut the amount of cash that banks must hold as reserves for the first time this year, releasing about 530 billion yuan ($83.25 billion) in long-term liquidity. read more

The move was largely expected after the State Council, or cabinet, said on Wednesday that monetary policy tools – including cuts in banks’ reserve requirement ratios (RRRs) – should be used in a timely way.

Policymakers need to ensure nothing goes wrong before a twice-a-decade meeting of the ruling Communist Party in autumn, when President Xi Jinping is almost certain to secure a precedent-breaking third term as leader, policy insiders said.

But Beijing’s strict zero tolerance policy on COVID-19 is taking an increasing toll on the world’s second-largest economy, and is starting to disrupt supply chains globally ranging from cars to iPhones. read more

“In the run-up to the Party Congress, we think the central bank will prioritise growth, especially as the COVID battle drags on and housing markets fail to rebound,” analysts at Barclays said in a note.

Retail sales, a gauge of consumption which has been lagging since COVID-19 first hit, likely shrank 1.6% in March from a year earlier. That would be the worst showing since June 2020, reversing a 6.7% rise in the first two months, the poll showed.

Industrial output likely grew 4.5% in March from a year earlier, slowing from 7.5% in the first two months, while fixed-asset investment may have expanded 8.5% in the January-March, slowing from 12.2% in the first two months.

The Reuters poll forecast China’s growth to slow to 5.0% in 2022, suggesting the government faces an uphill battle in hitting this year’s target of around 5.5%. read more

Barclays estimates that the second-quarter GDP growth could dip to 3%, dragging 2022 growth to 4.2%, if Shanghai’s extended lockdown were to last for one month and partial lockdowns in the rest of the country remained in place for two months.

Reflecting weakening domestic demand and COVID-related logistical snarls, China’s imports contracted in March, while exports — the last major growth driver — are showing signs of fatigue. read more

The government has unveiled more fiscal stimulus this year, including stepping up local bond issuance to fund infrastructure projects, and cutting taxes for businesses.

But analysts are not sure if rate cuts would do much to arrest the economic slump in the near term, as factories and businesses struggle and consumers remain cautious about spending. More aggressive easing could also trigger capital outflows, putting more pressure on Chinese financial markets.

“I don’t think this RRR cut (on Friday) matters that much for the economy at this stage,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, noting it was less than markets had expected.

“The main challenge the economy faces is the Omicron outbreaks and the lockdown policies that restrict mobility. More liquidity may help on the margin, but it doesn’t address the root of the problem. Manufacturers face the daunting risk of supply chain disruptions.

“Unless we see effective policies to address the mobility problem, the economy will slow. I expect GDP growth in Q2 to turn negative.”

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Reporting by Kevin Yao; Editing by Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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