mandates — “the economic goals of maximum employment and price stability”— as new information arrived.

Donald Kohn, a senior fellow at the Brookings Institution in Washington, was a Fed insider for 40 years, and retired as vice chair in 2010. With his inestimable guidance, I plunged into Fed history during the Volcker era.

I found an astonishing wealth of material, providing far more information than reporters had access to back then. In fact, while the current Fed provides vast reams of data, what goes on behind closed doors is better documented, in some respects, for the Volcker Fed.

That’s because transcripts of Fed meetings from that period were reconstructed from recordings that, Mr. Kohn said, “nobody was thinking about as they were talking because nobody knew about them or expected that this would ever be published, except, I guess Volcker.” By the 1990s, when the Fed began to produce transcripts available on a five-year time delay, Mr. Kohn said, participants in the meetings “were aware they were being recorded for history, so we became more restrained in what we said.”

So reading the Volcker transcripts is like being a fly on the wall. Some names of foreign officials have been scrubbed, but most of the material is there.

In a phone conversation, Mr. Kohn identified two critical “Volcker moments,” which he discussed at a Dallas Federal Reserve conference in June. “In both cases, the Fed moved in subtle ways and surprised people by changing its focus and its approach,” he said.

Congress, financial circles and academic institutions. Economics students may remember Milton Friedman saying: “Inflation is always and everywhere a monetary phenomenon.”

For Fed watchers, the change in the central bank’s emphasis had practical implications. Richard Bernstein, a former chief investment strategist at Merrill Lynch who now runs his own firm, said that back then: “You needed a calculator to figure out the numbers being released by the Fed. By comparison, now, there are practically no numbers. You just need to look at the words of Fed statements.”

The Fed’s methods of dealing with inflation are abstruse stuff. But its conversations about the problem in 1982 were pithy, and its decisions appeared to be based as much on psychology as on traditional macroeconomics.

As Mr. Volcker put it at a Federal Open Market Meeting on Oct. 6, 1979, “I have described the state of the markets as in some sense as nervous as I have ever seen them.” He added: “We are not dealing with a stable psychological or stable expectational situation by any means. And on the inflation front, we‘re probably losing ground.”

17 percent by March 1980. The Fed plunged the economy into one recession and then, when the first one failed to curb inflation sufficiently, into a second.

unemployment rate stood at 10.8 percent, a postwar high that was not exceeded until the coronavirus recession of 2020. But in 1982, even people at the Fed were wondering when the economy would begin to recover from the damage that had been done.

The fall of 1982 was the second “Volcker moment” discerned by Mr. Kohn, who was in the room during meetings. The Fed decided that inflation was coming down — although in September 1982, it was still in the 6 to 7 percent range. The economy was contracting sharply, and the extraordinarily high interest rates in the United States had ricocheted around the world, worsening a debt crisis in Mexico, Argentina and, soon, the rest of Latin America.

Fed meeting that October, when one official said, “There have certainly been some other problem situations” in Latin America, Mr. Volcker responded, “That’s the understatement of the day, if I must say so.”

Penn Square Bank in Oklahoma had collapsed, a precursor of other failures to come.

“We are in a worldwide recession,” Mr. Volcker said. “I don’t think there’s any doubt about that.” He added: “I don’t know of any country of any consequence in the world that has an expansion going on. And I can think of lots of them that have a real downturn going on. Obviously, unemployment is at record levels. It is rising virtually everyplace. In fact, I can’t think of a major country that is an exception to that.”

It was time, he and others agreed, to provide relief.

The Fed needed to make sure that interest rates moved downward, but the method of targeting the monetary supply wasn’t working properly. It could not be calibrated precisely enough to guarantee that interest rates would fall. In fact, interest rates rose in September 1982, when the Fed had wanted them to drop. “I am totally dissatisfied,” Mr. Volcker said.

It was, therefore, time, to shift the Fed’s focus back to interest rates, and to resolutely lower them.

This wasn’t an easy move, Mr. Kohn said, but it was the right one. “It took confidence and some subtle judgment to know when it was time to loosen conditions,” he said. “We’re not there yet today — inflation is high and it’s time to tighten now — but at some point, the Fed will have to do that again.”

The Fed pivot in 1982 had a startling payoff in financial markets.

As early as August 1982, policymakers at the central bank were discussing whether it was time to loosen financial conditions. Word trickled to traders, interest rates fell and the previously lackluster S&P 500 started to rise. It gained nearly 15 percent for the year and kept going. That was the start of a bull market that continued for 40 years.

In 1982, the conditions that set off rampant optimism in the stock market didn’t happen overnight. The Volcker-led Fed had to correct itself repeatedly while responding to major crises at home and abroad. It took years of pain to reach the point at which it made sense to pivot, and for businesses to start rehiring workers and for traders to go all-in on risky assets.

Today, the Fed is again engaging in a grand experiment, even as Russia’s war in Ukraine, the lingering pandemic and political crises in the United States and around the globe are endangering millions of people.

When will the big pivot happen this time? I wish I knew.

The best I can say is that it would be wise to prepare for bad times but to plan and invest for prosperity over the long haul.

I’ll come back with more detail on how to do that.

But I would try to stay invested in both the stock and bond markets permanently. The Volcker era demonstrates that when the moment has at last come, sea changes in financial markets can occur in the blink of an eye.

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Federal Reserve Attacks Inflation With Another Big Hike, Expects More

The central bank raised its key short-term rate by a substantial three-quarters of a point for the third consecutive time.

Intensifying its fight against high inflation, the Federal Reserve raised its key interest rate Wednesday by a substantial three-quarters of a point for a third straight time and signaled more large rate hikes to come — an aggressive pace that will heighten the risk of an eventual recession.

The Fed’s move boosted its benchmark short-term rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level since early 2008.

The officials also forecast that they will further raise their benchmark rate to roughly 4.4% by year’s end, a full percentage point higher than they had forecast as recently as June. And they expect to raise the rate further next year, to about 4.6%. That would be the highest level since 2007.

On Wall Street, stock prices fell and bond yields rose in response to the Fed’s projection of further steep rate hikes ahead.

The central bank’s action Wednesday followed a government report last week that showed high costs spreading more broadly through the economy, with price spikes for rents and other services worsening even though some previous drivers of inflation, such as gas prices, have eased. By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto or business loan. Consumers and businesses then presumably borrow and spend less, cooling the economy and slowing inflation.

Fed officials have said they’re seeking a “soft landing,” by which they would manage to slow growth enough to tame inflation but not so much as to trigger a recession. Yet economists increasingly say they think the Fed’s steep rate hikes will lead, over time, to job cuts, rising unemployment and a full-blown recession late this year or early next year.

In their updated economic forecasts, the Fed’s policymakers project that economic growth will remain weak for the next few years, with rising unemployment. It expects the jobless rate to reach 4.4% by the end of 2023, up from its current level of 3.7%. Historically, economists say, any time the unemployment rate has risen by a half-point over several months, a recession has always followed.

Fed officials now see the economy expanding just 0.2% this year, sharply lower than its forecast of 1.7% growth just three months ago. And it expects sluggish growth below 2% from 2023 through 2025.

And even with the steep rate hikes the Fed foresees, it still expects core inflation — which excludes the volatile food and gas categories — to be 3.1% at the end of next year, well above its 2% target.

Chair Jerome Powell acknowledged in a speech last month that the Fed’s moves will “bring some pain” to households and businesses. And he added that the central bank’s commitment to bringing inflation back down to its 2% target was “unconditional.”

Falling gas prices have slightly lowered headline inflation, which was a still-painful 8.3% in August compared with a year earlier. Declining gas prices might have contributed to a recent rise in President Joe Biden’s public approval ratings, which Democrats hope will boost their prospects in the November midterm elections.

Short-term rates at a level the Fed is now envisioning would make a recession likelier next year by sharply raising the costs of mortgages, car loans and business loans. The economy hasn’t seen rates as high as the Fed is projecting since before the 2008 financial crisis. Last week, the average fixed mortgage rate topped 6%, its highest point in 14 years. Credit card borrowing costs have reached their highest level since 1996, according to Bankrate.com.

Inflation now appears increasingly fueled by higher wages and by consumers’ steady desire to spend and less by the supply shortages that had bedeviled the economy during the pandemic recession. On Sunday, though, President Biden said on CBS’ “60 Minutes” that he believed a soft landing for the economy was still possible, suggesting that his administration’s recent energy and health care legislation would lower prices for pharmaceuticals and health care.

Some economists are beginning to express concern that the Fed’s rapid rate hikes — the fastest since the early 1980s — will cause more economic damage than necessary to tame inflation. Mike Konczal, an economist at the Roosevelt Institute, noted that the economy is already slowing and that wage increases – a key driver of inflation — are levelling off and by some measures even declining a bit.

Surveys also show that Americans are expecting inflation to ease significantly over the next five years. That is an important trend because inflation expectations can become self-fulfilling: If people expect inflation to ease, some will feel less pressure to accelerate their purchases. Less spending would then help moderate price increases.

Konczal said there is a case to be made for the Fed to slow its rate hikes over the next two meetings.

“Given the cooling that’s coming,” he said, “you don’t want to rush into this.”

The Fed’s rapid rate hikes mirror steps that other major central banks are taking, contributing to concerns about a potential global recession. The European Central Bank last week raised its benchmark rate by three-quarters of a percentage point. The Bank of England, the Reserve Bank of Australia and the Bank of Canada have all carried out hefty rate increases in recent weeks.

And in China, the world’s second-largest economy, growth is already suffering from the government’s repeated COVID lockdowns. If recession sweeps through most large economies, that could derail the U.S. economy, too.

Even at the Fed’s accelerated pace of rate hikes, some economists — and some Fed officials — argue that they have yet to raise rates to a level that would actually restrict borrowing and spending and slow growth.

Many economists sound convinced that widespread layoffs will be necessary to slow rising prices. Research published earlier this month under the auspices of the Brookings Institution concluded that unemployment might have to go as high as 7.5% to get inflation back to the Fed’s 2% target.

Only a downturn that harsh would reduce wage growth and consumer spending enough to cool inflation, according to the research, by Johns Hopkins University economist Laurence Ball and two economists at the International Monetary Fund.

Additional reporting by The Associated Press.

Source: newsy.com

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In Parts Of The Mideast, Power Generators Spew Toxic Fumes 24/7

The pollutants caused by massive generators add to the many environmental woes of the Middle East.

They literally run the country. In parking lots, on flatbed trucks, hospital courtyards and rooftops, private generators are ubiquitous in parts of the Middle East, spewing hazardous fumes into homes and businesses 24 hours a day.

As the world looks for renewable energy to tackle climate change, millions of people around the region depend almost completely on diesel-powered private generators to keep the lights on because war or mismanagement have gutted electricity infrastructure.

Experts call it national suicide from an environmental and health perspective.

“Air pollution from diesel generators contains more than 40 toxic air contaminants, including many known or suspected cancer-causing substances,” said Samy Kayed, managing director and co-founder of the Environment Academy at the American University of Beirut in Lebanon.

Greater exposure to these pollutants likely increases respiratory illnesses and cardiovascular disease, he said. It also causes acid rain that harms plant growth and increases eutrophication — the excess build-up of nutrients in water that ultimately kills aquatic plants.

Since they usually use diesel, generators also produce far more climate change-inducing emissions than, for example, a natural gas power plant does, he said.

The pollutants caused by massive generators add to the many environmental woes of the Middle East, which is one of the most vulnerable regions in the world to the impact of climate change. The region already has high temperatures and limited water resources even without the growing impact of global warming.

The reliance on generators results from state failure. In Lebanon, Iraq, Yemen and elsewhere, governments can’t maintain a functioning central power network, whether because of war, conflict or mismanagement and corruption.

Lebanon, for example, has not built a new power plant in decades. Multiple plans for new ones have run aground on politicians’ factionalism and conflicting patronage interests. The country’s few aging, heavy-fuel oil plants long ago became unable to meet demand.

Iraq, meanwhile, sits on some of the world’s biggest oil reserves. Yet scorching summer-time heat is always accompanied by the roar of neighborhood generators, as residents blast ACs around the clock to keep cool.

Repeated wars over the decades have wrecked Iraq’s electricity networks. Corruption has siphoned away billions of dollars meant to repair and upgrade it. Some 17 billion cubic meters of gas from Iraq’s wells are burned every year as waste, because it hasn’t built the infrastructure to capture it and convert it to electricity to power Iraqi homes.

In Libya, a country prized for its light and sweet crude oil, electricity networks have buckled under years of civil war and the lack of a central government.

“The power cuts last the greater part of the day, when electricity is mostly needed,” said Muataz Shobaik, the owner of a butcher shop in the city of Benghazi, in Libya’s east, who uses a noisy generator to keep his coolers running.

“Every business has to have a backup off-grid solution now,” he said. Diesel fumes from his and neighboring shops’ machines hung thick in the air amid the oppressive heat.

The Gaza Strip’s 2.3 million people rely on around 700 neighborhood generators across the territory for their homes. Thousands of private generators keep businesses, government institutions, universities and health centers running. Running on diesel, they churn black smoke in the air, tarring walls around them.

Since Israel bombed the only power plant in the Hamas-ruled territory in 2014, the station has never reached full capacity. Gaza only gets about half the power it needs from the plant and directly from Israel. Cutoffs can last up to 16 hours a day.

WAY OF LIFE

Perhaps nowhere do generators rule people’s lives as much as in Lebanon, where the system is so entrenched and institutionalized that private generator owners have their own business association.

They are crammed into tight streets, parking lots, on roofs and balconies and in garages. Some are as large as storage containers, others small and blaring noise.

Lebanon’s 5 million people have long depended on them. The word “moteur,” French for generator, is one of the most often spoken words among Lebanese.

Reliance has only increased since Lebanon’s economy unraveled in late 2019 and central power cutoffs began lasting longer. At the same time, generator owners have had to ration use because of soaring diesel prices and high temperatures, turning them off several times a day for breaks.

So residents plan their lives around the gaps in electricity.

Those who can’t start the day without coffee set an alarm to make a cup before the generator turns off. The frail or elderly in apartment towers wait for the generator to switch on before leaving home so they don’t have to climb stairs. Hospitals must keep generators humming so life-saving machines can operate without disruption.

“We understand people’s frustration, but if it wasn’t for us, people would be living in darkness,” said Ihab, the Egyptian operator of a generator station north of Beirut.

“They say we are more powerful than the state, but it is the absence of the state that led us to exist,” he said, giving only his first name to avoid trouble with the authorities.

Siham Hanna, a 58-year-old translator in Beirut, said generator fumes exacerbate her elderly father’s lung condition. She wipes soot off her balcony and other surfaces several times a day.

“It’s the 21st century, but we live like in the stone ages. Who lives like this?” said Hanna, who does not recall her country ever having stable electricity in her life.

Some in Lebanon and elsewhere have begun to install solar power systems in their homes. But most use it only to fill in when the generator is off. Cost and space issues in urban areas have also limited solar use.

In Iraq, the typical middle-income household uses generator power for 10 hours a day on average and pays $240 per Megawatt/hour, among the highest rates in the region, according to a report by the International Energy Agency.

The need for generators has become ingrained in people’s minds. At a recent concert in the capital, famed singer Umm Ali al-Malla made sure to thank not only the audience but also the venue’s technical director “for keeping the generator going” while her admirers danced.

TOXIC CONTAMINANTS

As opposed to power plants outside urban areas, generators are in the heart of neighborhoods, pumping toxins directly to residents.

This is catastrophic, said Najat Saliba, a chemist at the American University of Beirut who recently won a seat in Parliament.

“This is extremely taxing on the environment, especially the amount of black carbon and particles that they emit,” she said. There are almost no regulations and no filtering of particles, she added.

Researchers at AUB found that the level of toxic emissions may have quadrupled since Lebanon’s financial crisis began because of increased reliance on generators.

In Iraq’s northern city of Mosul, miles of wires crisscross streets connecting thousands of private generators. Each produces 600 kilograms of carbon dioxide and other greenhouse gases per 8 hours working time, according to Mohammed al Hazem, an environmental activist.

Similarly, a 2020 study on the environmental impact of using large generators in the University of Technology in Baghdad found very high concentrations of pollutants exceeding limits set by the United States’ Environmental Protection Agency and the World Health Organization.

That was particularly because Iraqi diesel fuel has a high sulphur content — “one of the worst in the world,” the study said. The emissions include “sulphate, nitrate materials, atoms of soot carbon, ash” and pollutants that are considered carcinogens, it warned.

“The pollutants emitted from these generators exert a remarkable impact on the overall health of students and university staff, it said.

Additional reporting by The Associated Press.

Source: newsy.com

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Shock Waves Hit the Global Economy, Posing Grave Risk to Europe

Russia’s invasion of Ukraine and the continuing effects of the pandemic have hobbled countries around the globe, but the relentless series of crises has hit Europe the hardest, causing the steepest jump in energy prices, some of the highest inflation rates and the biggest risk of recession.

The fallout from the war is menacing the continent with what some fear could become its most challenging economic and financial crisis in decades.

While growth is slowing worldwide, “in Europe it’s altogether more serious because it’s driven by a more fundamental deterioration,” said Neil Shearing, group chief economist at Capital Economics. Real incomes and living standards are falling, he added. “Europe and Britain are just worse off.”

eightfold increase in natural gas prices since the war began presents a historic threat to Europe’s industrial might, living standards, and social peace and cohesion. Plans for factory closings, rolling blackouts and rationing are being drawn up in case of severe shortages this winter.

China, a powerful engine of global growth and a major market for European exports like cars, machinery and food, is facing its own set of problems. Beijing’s policy of continuing to freeze all activity during Covid-19 outbreaks has repeatedly paralyzed large swaths of the economy and added to worldwide supply chain disruptions. In the last few weeks alone, dozens of cities and more than 300 million people have been under full or partial lockdowns. Extreme heat and drought have hamstrung hydropower generation, forcing additional factory closings and rolling blackouts.

refusing to pay their mortgages because they have lost confidence that developers will ever deliver their unfinished housing units. Trade with the rest of the world took a hit in August, and overall economic growth, although likely to outrun rates in the United States and Europe, looks as if it will slip to its slowest pace in a decade this year. The prospect has prompted China’s central bank to cut interest rates in hopes of stimulating the economy.

“The global economy is undoubtedly slowing,” said Gregory Daco, chief economist at the global consulting firm EY- Parthenon, but it’s “happening at different speeds.”

In other parts of the world, countries that are able to supply vital materials and goods — particularly energy producers in the Middle East and North Africa — are seeing windfall gains.

And India and Indonesia are growing at unexpectedly fast paces as domestic demand increases and multinational companies look to vary their supply chains. Vietnam, too, is benefiting as manufacturers switch operations to its shores.

head-spinning energy bills this winter ratcheted up this week after Gazprom, Russia’s state-owned energy company, declared it would not resume the flow of natural gas through its Nord Stream 1 pipeline until Europe lifted Ukraine-related sanctions.

Daily average electricity prices in Western Europe have reached record levels, according to Rystad Energy, surging past 600 euros ($599) per megawatt-hour in Germany and €700 in France, with peak-hour rates as high as €1,500.

In the Czech Republic, roughly 70,000 angry protesters, many with links to far-right groups, gathered in Wenceslas Square in Prague this past weekend to demonstrate against soaring energy bills.

The German, French and Finnish governments have already stepped in to save domestic power companies from bankruptcy. Even so, Uniper, which is based in Germany and one of Europe’s largest natural gas buyers and suppliers, said last week that it was losing more than €100 million a day because of the rise in prices.

International Monetary Fund this week to issue a proposal to reform the European Union’s framework for government public spending and deficits.

caps blunt the incentive to reduce energy consumption — the chief goal in a world of shortages.

Central banks in the West are expected to keep raising interest rates to make borrowing more expensive and force down inflation. On Thursday, the European Central Bank raised interest rates by three-quarters of a point, matching its biggest increase ever. The U.S. Federal Reserve is likely to do the same when it meets this month. The Bank of England has taken a similar position.

The worry is that the vigorous push to bring down prices will plunge economies into recessions. Higher interest rates alone won’t bring down the price of oil and gas — except by crashing economies so much that demand is severely reduced. Many analysts are already predicting a recession in Germany, Italy and the rest of the eurozone before the end of the year. For poor and emerging countries, higher interest rates mean more debt and less money to spend on the most vulnerable.

“I think we’re living through the biggest development disaster in history, with more people being pushed more quickly into dire poverty than has every happened before,” said Mr. Goldin, the Oxford professor. “It’s a particularly perilous time for the world economy.”

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Sweden, Finland step in to avert Lehman-like situation for power companies

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Swedish Finance Minister Mikael Damberg attends a press conference to propose relief for households affected by high electricity prices, in Rosenbad, Stockholm, Sweden January 12, 2022. Johan Jeppsson /TT News Agency/via REUTERS/File Photo

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  • Sweden, Finland offer $33 bln in credit guarantees
  • Soaring power prices led to spike in collateral need
  • Power firms risked “technical bankruptcy”, Sweden says
  • Fortum welcomes proposal, says talks ongoing

STOCKHOLM/HELSINKI, Sept 4 (Reuters) – Finland and Sweden on Sunday announced plans to offer billions of dollars in liquidity guarantees to power companies in their countries after Russia’s Gazprom (GAZP.MM) shut the Nord Stream 1 gas pipeline, deepening Europe’s energy crisis.

Finland is aiming to offer 10 billion euros ($9.95 billion) and Sweden plans to offer 250 billion Swedish crowns ($23.2 billion) in liquidity guarantees.

“This has had the ingredients for a kind of a Lehman Brothers of energy industry,” Finnish Economic Affairs Minister Mika Lintila said on Sunday.

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When Lehman Brothers, the fourth-largest U.S. investment bank at the time, filed for bankruptcy in September 2008 with more than $600 billion in debt, it triggered the worst parts of the U.S. financial crisis.

“The government’s programme is a last-resort financing option for companies that would otherwise be threatened with insolvency,” Finland’s Prime Minister Sanna Marin told a news conference.

State-controlled Finnish power company Fortum (FORTUM.HE), which last week had urged Nordic regulators to take immediate action to avert defaults even among smaller players, praised the proposals made by Helsinki and Stockholm.

“We appreciate Finnish and Swedish governments taking swift action to stabilise the Nordic derivatives market and support Nordic energy companies in time of crisis,” the company tweeted.

“It’s crucial to keep companies operational. Our discussions with the Finnish government are ongoing,” it said.

The guarantees aim to prevent ballooning collateral requirements from toppling energy companies that trade electricity on the Nasdaq Commodities exchange, an event that could in turn spread to the financial industry, the governments said.

Lower gas flows from Russia both before and after its February invasion of Ukraine have pushed up European prices and driven up electricity costs.

The rapid rise in electricity prices has resulted in paper losses on electricity futures contracts of power companies, forcing them to find funds to post additional collateral with the exchanges.

The collateral requirement on Nasdaq clearing recently hit 180 billion Swedish crowns, up from around 25 billion in normal times due to the surge in power prices, which have risen some 1,100%, Sweden’s debt office said on Saturday.

The government feared that the Nord Stream 1 shutdown would lead to a further surge.

Finland’s Marin said there needed to be measures at the European Union level to stabilize the functioning of both the derivatives market and the energy market as a whole.

Nasdaq clearing is a Swedish company supervised by Swedish authorities, which is the main reason Sweden was the first country to step in to tackle the potential crisis.

Swedish Finance Minister Mikael Damberg said on Sunday that the guarantees would last until March next year in Sweden and would also cover all Nordic and Baltic nations for the next two weeks only.

Without government guarantees, electricity producers could have ended up in “technical bankruptcy” on Monday, Damberg said.

($1 = 10.7633 Swedish crowns)

($1 = 1.0049 euros)

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Reporting by Supantha Mukherjee in Stockholm and Essi Lehto in Helsinki
Editing by Terje Solsvik, Hugh Lawson and Frances Kerry

Our Standards: The Thomson Reuters Trust Principles.

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What Will Happen to Black Workers’ Gains if There’s a Recession?

Black Americans have been hired much more rapidly in the wake of the pandemic shutdowns than after previous recessions. But as the Federal Reserve tries to soften the labor market in a bid to tame inflation, economists worry that Black workers will bear the brunt of a slowdown — and that without federal aid to cushion the blow, the impact could be severe.

Some 3.5 million Black workers lost or left their jobs in March and April 2020. In weeks, the unemployment rate for Black workers soared to 16.8 percent, the same as the peak after the 2008 financial crisis, while the rate for white workers topped out at 14.1 percent.

Since then, the U.S. economy has experienced one of its fastest rebounds ever, one that has extended to workers of all races. The Black unemployment rate was 6 percent last month, just above the record low of late 2019. And in government data collected since the 1990s, wages for Black workers are rising at their fastest pace ever.

first laid off during a downturn and the last hired during a recovery.

William Darity Jr., a Duke University professor who has studied racial gaps in employment, says the problem is that the only reliable tool the Fed uses to fight inflation — increasing interest rates — works in part by causing unemployment. Higher borrowing costs make consumers less likely to spend and employers less likely to invest, reducing pressure on prices. But that also reduces demand for workers, pushing joblessness up and wages down.

“I don’t know that there’s any existing policy option that’s plausible that would not result in hurting some significant portion of the population,” Mr. Darity said. “Whether it’s inflation or it’s rising unemployment, there’s a disproportionate impact on Black workers.”

In a paper published last month, Lawrence H. Summers, a former Treasury secretary and top economic adviser to Presidents Bill Clinton and Barack Obama, asserted with his co-authors that the Fed would need to allow the overall unemployment rate to rise to 5 percent or above — it is now 3.5 percent — to bring inflation under control. Since Black unemployment is typically about double that of white workers, that suggests that the rate for Black workers would approach or reach double digits.

The Washington Post and an accompanying research paper, Jared Bernstein — now a top economic adviser to President Biden — laid out the increasingly popular argument that in light of this, the Fed “should consider targeting not the overall unemployment rate, but the Black rate.”

Fed policy, he added, implicitly treats 4 percent unemployment as a long-term goal, but “because Black unemployment is two times the overall rate, targeting 4 percent for the overall economy means targeting 8 percent for blacks.”

news conference last month. “That’s not going to happen without restoring price stability.”

Some voices in finance are calling for smaller and fewer rate increases, worried that the Fed is underestimating the ultimate impact of its actions to date. David Kelly, the chief global strategist for J.P. Morgan Asset Management, believes that inflation is set to fall considerably anyway — and that the central bank should exhibit greater patience, as remnants of pandemic government stimulus begin to vanish and household savings further dwindle.

“The economy is basically treading water right now,” Mr. Kelly said, adding that officials “don’t need to put us into a recession just to show how tough they are on inflation.”

Michelle Holder, a labor economist at John Jay College of Criminal Justice, similarly warned against the “statistical fatalism” that halting labor gains is the only way forward. Still, she said, she’s fully aware that under current policy, trade-offs between inflation and job creation are likely to endure, disproportionately hurting Black workers. Interest rate increases, she said, are the Fed’s primary tool — its hammer — and “a hammer sees everything as a nail.”

having the federal government guarantee a job to anyone who wants one. Some economists support less ambitious policies, such as expanded benefits to help people who lose jobs in a recession. But there is little prospect that Congress would adopt either approach, or come to the rescue again with large relief checks — especially given criticism from many Republicans, and some high-profile Democrats, that excessive aid in the pandemic contributed to inflation today.

“The tragedy will be that our administration won’t be able to help the families or individuals that need it if another recession happens,” Ms. Holder said.

Morgani Brown, 24, lives and works in Charlotte, N.C., and has experienced the modest yet meaningful improvements in job quality that many Black workers have since the initial pandemic recession. She left an aircraft cleaning job with Jetstream Ground Services at Charlotte Douglas International Airport last year because the $10-an-hour pay was underwhelming. But six months ago, the work had become more attractive.

has recently cut back its work force. (An Amazon official noted on a recent earnings call that the company had “quickly transitioned from being understaffed to being overstaffed.”)

Ms. Brown said she and her roommates hoped that their jobs could weather any downturn. But she has begun hearing more rumblings about people she knows being fired or laid off.

“I’m not sure exactly why,” she said.

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1st Ship Carrying Ukrainian Grain Leaves The Port Of Odesa

Halted food shipments because of the war has pushed up food prices globally and threatened hunger and political instability in developing nations.

The first ship carrying Ukrainian grain set out Monday from the port of Odesa under an internationally brokered deal to unblock the embattled country’s agricultural exports and ease the growing global food crisis.

The Sierra Leone-flagged cargo ship Razoni sounded its horn as it slowly departed with over 26,000 tons of corn destined for Lebanon.

“The first grain ship since Russian aggression has left port,” Ukrainian Minister of Infrastructure Oleksandr Kubrakov declared on Twitter.

Russia and Ukraine signed agreements in Istanbul with Turkey and the U.N. on July 22, clearing the way for Ukraine to export 22 million tons of grain and other agricultural products that have been stuck in Black Sea ports because of Russia’s invasion of Ukraine more than five months ago. The deals also allow Russia to export grain and fertilizer.

As part of the agreements, safe corridors through the mined waters outside Ukraine’s ports were established.

Ukraine and Russia are major global suppliers of wheat, barley, corn and sunflower oil, with the fertile Black Sea region long known as the breadbasket of Europe. The holdup of food shipments because of the war has worsened rising food prices worldwide and threatened hunger and political instability in developing nations.

“Today Ukraine, together with partners, takes another step to prevent world hunger,” Kubrakov said.

In Moscow, Kremlin spokesman Dmitry Peskov hailed the ship’s departure as “very positive,” saying it would help test the “efficiency of the mechanisms that were agreed to during the talks in Istanbul.”

Under the agreements, ships going in and out of Ukrainian ports will be subject to inspection to make sure that incoming vessels are not carrying weapons and that outgoing ones are bearing only grain, fertilizer or related food items, not any other commodities.

The Razoni was expected to dock Tuesday afternoon in Istanbul, where teams of Russian, Ukrainian, Turkish and U.N. officials were set to board it for inspection.

More ships are expected to leave from Ukraine’s ports through the safe corridors. At Odesa, 16 more vessels, all blocked since Russia’s invasion on Feb. 24, were waiting their turn, with others to follow, Ukrainian authorities said.

But some shipping companies are not yet rushing to export food across the Black Sea as they assess the danger of mines and the risk of Russian rockets hitting grain warehouses and ports.

U.N. Secretary-General Antonio Guterres, who proposed the grain deal in April, said the Razoni was “loaded with two commodities in short supply: corn and hope.”

“Hope for millions of people around the world who depend on the smooth running of Ukraine’s ports to feed their families,” he said.

In an interview with Turkey’s state-run Anadolu Agency, Turkish Defense Minister Hulusi Akar warned that the global food crisis threatens to trigger “a serious wave of migration from Africa to Europe and to Turkey.”

Lebanon, the corn’s destination, is in the grip of a severe financial crisis. A 2020 explosion at its main port in Beirut shattered its capital city and destroyed grain silos. Lebanon mostly imports wheat from Ukraine but also buys its corn to make cooking oil and produce animal feed.

Kubrakov said the shipments will also help Ukraine’s war-shattered economy.

“Unlocking ports will provide at least $1 billion in foreign exchange revenue to the economy and an opportunity for the agricultural sector to plan for next year,” he said.

Hearing the ship sound its horn as it left port delighted Olena Vitalievna, an Odesa resident.

“Finally, life begins to move forward and there are some changes in a positive direction,” she said. “In general, the port should live its own life because Odesa is a port city. We live here. We want everything to work for us, everything to bustle.”

Yet the resumption of the grain shipments came as fighting raged elsewhere in Ukraine, with Russia pressing its offensive in the east while Ukraine tries to retake territory in the Russian-occupied south.

Ukraine’s presidential office said at least three civilians were killed and 16 wounded by Russian shelling in the Donetsk region over the past 24 hours.

Donetsk Gov. Pavlo Kyrylenko repeated a call for all residents to evacuate, emphasizing the need to remove about 52,000 children still in the region.

In Kharkiv, two people were wounded by a Russian strike in the morning. One was struck while waiting for a bus, the other when a Russian shell exploded near an apartment building.

The southern city of Mykolaiv also faced shelling that ruined a building at a hospital and damaged ambulances, according to regional Gov. Vitaliy Kim. Three civilians were wounded elsewhere in the city, he said.

Soon after the grain shipment deal was signed, a Russian missile targeted Odesa. Analysts warned that the continuing fighting could still upend the grain deal.

“The departure of the first vessel doesn’t solve the food crisis; it’s just the first step that could also be the last if Russia decides to continue attacks in the south,” said Volodymyr Sidenko, an expert with the Kyiv-based Razumkov Center think tank.

Additional reporting by the Associated Press.

Source: newsy.com

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Fed chair Powell is not done telling markets where rates will go

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WASHINGTON, July 26 (Reuters) – Since it began its current round of interest-rate hikes this year, the U.S. Federal Reserve has aimed to let investors know ahead of time not just where rates are heading generally but exactly how big a move to expect each time.

And despite some snags, including what analysts say was a last-minute but successfully telegraphed change of plans before the June meeting, Fed Chair Jerome Powell isn’t likely to abandon those efforts.

The Fed and other central banks have long used that signaling – known as forward guidance in their parlance – to set expectations about where policy is headed to help create the financial conditions conducive to their goal. Coming out of the 2007-2009 financial crisis, for instance, the Fed set very long-term guidance that ensured rates would not rise for years.

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The past year’s run-in with the highest inflation in a generation has forced changes to that – in particular, shortening the horizon over which they can pledge certain actions.

“It’s a very difficult environment to try to give forward guidance 60, 90 days in advance,” Powell said at a press conference after May’s meeting. “There are just so many things that can happen in the economy and around the world. So, you know, we’re leaving ourselves room to look at the data and make a decision as we get there.”

Indeed, other central banks are encountering similar challenges and are responding in new ways. The European Central Bank last week raised rates more than it had promised at its prior meeting and did not provide guidance for the size of next month’s increase. The Bank of Canada delivered a surprise full percentage point interest-rate increase earlier this month without breathing a word in advance.

But as the head of the world’s most important central bank now undertaking its sharpest bout of policy tightening in decades, Powell has a particular stake in making sure markets don’t under- or over-estimate what is coming, analysts say.

On Tuesday, U.S. central bankers start a two-day meeting at which they are expected to ratify a 0.75 percentage point increase, the bigger of two possible increments that Powell weeks ago said would be under consideration. read more

And despite uncertainty over what data on inflation and employment in the next two months will show, analysts broadly expect Powell to put some parameters around September’s rate hike decision as well.

“Monetary policy works through market expectations, and if they go haywire, you end up tightening more than you want,” said Piper Sandler economist Roberto Perli. “I think it’s a tough game to play, but I think it’s reasonable for them to play.”

Former Fed governor and now Fed-watcher Larry Meyers says that on Wednesday Powell may avoid a specific promise on the size of the next hike, but may take “any opportunity to leave the impression it will be 50 or 75” basis points and “not to give the markets an incentive to build in 100.”

He’ll also be looking for Powell to lay the groundwork for an eventual pause in rate hikes by discussing what inflation “thresholds” could trigger a slower pace of tightening.

SHOCKED THE MARKETS

The Fed began increasing its policy rate in March, lifting it a quarter of a percentage point and noting that “ongoing increases in the target range will be appropriate,” a phrase most analysts expect it will repeat this week.

Powell had indicated the size of the March move a couple weeks ahead of time, and likewise signaled, and then delivered, a half-point hike in May.

The pattern changed in June, when the Fed delivered a 75-basis-point hike, despite having for weeks signaled a smaller hike.

But even then, markets were prepped for it, thanks to a Wall Street Journal article less than 48 hours ahead of the decision that flagged the possibility of a bigger increase, given data days earlier showing inflation and inflation expectations rising faster than anticipated.

The story was widely interpreted as a message from the Fed, which has generally gotten high marks under Powell for its communications effectiveness.

To Karim Basta, chief economist at III Capital Management, the last minute switch was “suboptimal” and could have been avoided if Powell hadn’t given such specific guidance in the first place.

“It shocked the markets, it certainly shocked me, and again it’s really unnecessary,” he said, adding he would prefer for Powell to stick to giving a range of rate hike possibilities – or not say anything at all.

This week’s rate hike will lift the Fed’s policy rate to what policymakers say is a “neutral” level, and further increases in borrowing costs are expected to bite into economic growth and eventually inflation as well.

SGH Macro Advisors’ Tim Duy is among economists who say the central bank’s delay in reacting to rising inflation last year forced policymakers this year to push rates up far more quickly than otherwise.

“They fell so far behind the data it became impossible for them to follow through with the communications the way they typically would or they would like to,” Duy said. And it may not get easier, especially when they decide it is time to slow rate hikes to a more usual quarter-point increment.

Markets may react by immediately pricing in rate cuts, Duy said, easing financial conditions and nudging up demand before the Fed may feel inflation is heading convincingly down.

“The idea they will pivot to a measured pace of rate hikes is going to be confused with a pivot toward cutting – that’s the communications challenge,” Duy said.

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Reporting by Ann Saphir
Editing by Nick Zieminski

Our Standards: The Thomson Reuters Trust Principles.

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Exclusive: Evergrande discussing staggered payments, debt-to-equity swaps for $19 billion offshore bonds

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Unfinished residential buildings are pictured at the Evergrande Oasis, a housing complex developed by Evergrande Group, in Luoyang, China September 15, 2021. Picture taken September 15, 2021. REUTERS/Carlos Garcia Rawlins/File Photo

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HONG KONG, May 27 (Reuters) – China Evergrande Group (3333.HK) is considering repaying offshore public bondholders owed around $19 billion with cash instalments and equity in two of its Hong Kong-listed units, two sources said, as the world’s most indebted developer struggles to emerge from its financial crisis.

Evergrande’s entire $22.7 billion worth of offshore debt including loans and private bonds is deemed to be in default after missing payment obligations late last year. It said in March that it will unveil a preliminary debt restructuring proposal by the end of July. read more

As part of the proposal, Evergrande is looking to repay offshore creditors the principal and interest by turning them into new bonds, which will then be repaid in instalments over a period of seven to 10 years, said one of the sources.

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Offshore creditors also will be allowed to swap a portion of their debt into stakes in the developer’s Hong Kong-listed property services unit, Evergrande Property Services Group Ltd (6666.HK), and electric vehicle maker China Evergrande New Energy Vehicle Group Ltd (0708.HK), said the two sources.

The first source said up to 20% of the offshore debt can be swapped into equities of those two units. The restructuring proposals are, however, at an early stage and are subject to change, the source added.

Both the sources declined to be identified as they were not authorised to speak to the media.

Evergrande, once China’s top-selling developer, set up a risk management committee in December made up mostly of members from state enterprises, as the Guangdong provincial government is leading the restructuring.

Evergrande and the Guangdong provincial government did not respond to Reuters request for comment. Investment bank Moelis & Co declined to comment, while law firm Kirkland & Ellis did not respond. Moelis and Kirkland are advisers to a group of Evergrande offshore bondholders.

Evergrande is reeling under more than $300 billion in liabilities and has become the poster child of the country’s property sector crisis as it lurched from one missed payment deadline to another.

The developer’s woes quickly led to a wave of defaults in China’s property sector, a key pillar for the world’s second-largest economy, rattling investors and leading to a slump in home sales and firms struggling to access funding.

Evergrande has also struggled to repay suppliers and complete housing projects. While state intervention has quelled market concern over a disorderly collapse of the company, investors are still in the dark over whether they will recoup their money.

TAKING A HAIRCUT

Evergrande, which began talks with offshore bondholders earlier this year about the restructuring proposal, aims to finalise the plan by July and sign the agreements with investors by December, said the first source.

“(Evergrande) Chairman Hui Ka Yan hopes the bondholders will accept the proposal, as there are not many assets offshore that can be sold immediately to pay off the debts,” said the source.

It is not immediately clear how Evergrande will be able to secure sufficient cash to implement the cash repayment plan. The company saw contracted sales plunged by 39% in 2021 from the previous year.

Two offshore Evergrande bondholders said they were more inclined to pick the debt-to-equity swap option, as they don’t hold high hopes that the developer will be able to make full repayment in cash even within a promised extended timetable.

One of the bondholders said that most creditors, particularly the hedge funds, may prefer taking a haircut for the swap than go for extended notes.

“The distressed funds … they just want out,” said the bondholder, adding the views were very split in the creditors group and no consensus has been reached yet.

Most Evergrande dollar bonds had fallen below 10 cents on the dollar as of Friday morning. Following the Reuters report, the bonds traded slightly above 10 cents on the dollar.

“The scheme at least lets investors know the company has been working out something after bond defaults, hence it triggered some investors to take a punt at this price,” said James Wong, portfolio manager at GaoTeng Global Asset Management Ltd.

Shares of Evergrande Property Services and Evergrande New Energy Vehicle, as well as the parent, have been suspended for roughly two months. None of them have yet filed their financial results for 2021 because audit work had not been completed.

The property management unit is also under an internal probe since March to find out how banks seized its 13.4 billion yuan in deposits that had been pledged as security for third party guarantees.

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Reporting by Xie Yu, Julie Zhu and Clare Jim; Editing by Sumeet Chatterjee, Kim Coghill and Louise Heavens

Our Standards: The Thomson Reuters Trust Principles.

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