Until recently, staffing shortages at Biggby Coffee were so severe that many of the chain’s 300-plus stores had to close early some days, or in some cases not open at all. But while hiring remains a challenge, the pressure has begun to ease, said Mike McFall, the company’s co-founder and co-chief executive. One franchisee recently told him that 22 of his 25 locations were fully staffed and that only one was experiencing a severe shortage.

“We are definitely feeling the burden is lifting in terms of getting people to take the job,” Mr. McFall said. “We’re getting more applications, we’re getting more people through training now.”

The shift is a welcome one for business owners like Mr. McFall. He said franchisees have had to raise wages 50 percent or more to attract and retain workers — a cost increase they have offset by raising prices.

“The expectation by the consumer is that you are raising prices, and so if you don’t take advantage of that moment, you are going to be in a pickle,” he said, referring to the pressure to increase wages. “So you manage it by raising prices.”

So far, Mr. McFall said, higher prices haven’t deterred customers. Still, he said, the period of severe staffing shortages is not without its costs. He has seen a loss in sales, as well as a loss of efficiency and experienced workers. That will take time to rebuild, he said.

“When we were in crisis, it was all we were focused on,” he said. “So now that it feels like the crisis is mitigating, that it’s getting a little better, we can now begin to focus on the culture in the stores and try to build that up again.”

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Strong Dollar Is Good for the US but Bad for the World

The Federal Reserve’s determination to crush inflation at home by raising interest rates is inflicting profound pain in other countries — pushing up prices, ballooning the size of debt payments and increasing the risk of a deep recession.

Those interest rate increases are pumping up the value of the dollar — the go-to currency for much of the world’s trade and transactions — and causing economic turmoil in both rich and poor nations. In Britain and across much of the European continent, the dollar’s acceleration is helping feed stinging inflation.

On Monday, the British pound touched a record low against the dollar as investors balked at a government tax cut and spending plan. And China, which tightly controls its currency, fixed the renminbi at its lowest level in two years while taking steps to manage its decline.

Somalia, where the risk of starvation already lurks, the strong dollar is pushing up the price of imported food, fuel and medicine. The strong dollar is nudging debt-ridden Argentina, Egypt and Kenya closer to default and threatening to discourage foreign investment in emerging markets like India and South Korea.

the International Monetary Fund.

Japanese yen has reached a decades-long high. The euro, used by 19 nations across Europe, reached 1-to-1 parity with the dollar in June for the first time since 2002. The dollar is clobbering other currencies as well, including the Brazilian real, the South Korean won and the Tunisian dinar.

the economic outlook in the United States, however cloudy, is still better than in most other regions.

loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

A fragile currency can sometimes work as “a buffering mechanism,” causing nations to import less and export more, Mr. Prasad said. But today, many “are not seeing the benefits of stronger growth.”

Still, they must pay more for essential imports like oil, wheat or pharmaceuticals as well as for loan bills due from billion-dollar debts.

debt crisis in Latin America in the 1980s.

The situation is particularly fraught because so many countries ran up above-average debts to deal with the fallout from the pandemic. And now they are facing renewed pressure to offer public support as food and energy prices soar.

Indonesia this month, thousands of protesters, angry over a 30 percent price increase on subsidized fuel, clashed with the police. In Tunisia, a shortage of subsidized food items like sugar, coffee, flour and eggs has shuttered cafes and emptied market shelves.

New research on the impact of a strong dollar on emerging nations found that it drags down economic progress across the board.

“You can see these very pronounced negative effects of a stronger dollar,” said Maurice Obstfeld, an economics professor at the University of California, Berkeley, and an author of the study.

central banks feel pressure to raise interest rates to bolster their currencies and prevent import prices from skyrocketing. Last week, Argentina, the Philippines, Brazil, Indonesia, South Africa, the United Arab Emirates, Sweden, Switzerland, Saudi Arabia, Britain and Norway raised interest rates.

World Bank warned this month that simultaneous interest rate increases are pushing the world toward a recession and developing nations toward a string of financial crises that would inflict “lasting harm.”

Clearly, the Fed’s mandate is to look after the American economy, but some economists and foreign policymakers argue it should pay more attention to the fallout its decisions have on the rest of the world.

In 1998, Alan Greenspan, a five-term Fed chair, argued that “it is just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress.”

The United States is now facing a slowing economy, but the essential dilemma is the same.

“Central banks have purely domestic mandates,” said Mr. Obstfeld, the U.C. Berkeley economist, but financial and trade globalization have made economies more interdependent than they have ever been and so closer cooperation is needed. “I don’t think central banks can have the luxury of not thinking about what’s happening abroad.”

Flávia Milhorance contributed reporting from Rio de Janeiro.

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Analysis: After feverish week, global investors lick wounds and brace for more chaos

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NEW YORK/LONDON, Sept 25 (Reuters) – Global investors are preparing for more market mayhem after a monumental week that whipsawed asset prices around the world, as central banks and governments ramped up their fight against inflation.

Signs of extraordinary times were everywhere. The Federal Reserve delivered its third straight seventy-five basis point rate hike while Japan intervened to shore up the yen for the first time since 1998. The British pound slid to a fresh 37-year trough against the dollar after the country’s new finance minister unleashed historic tax cuts and huge increases in borrowing.

“It’s hard to know what will break where, and when,” said Mike Kelly, head of multi-asset at PineBridge Investments (US). “Before, the thinking had been that a recession would be short and shallow. Now we’re throwing that away and thinking about the unintended consequences of much tighter monetary policy.”

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Stocks plunged everywhere. The Dow Jones Industrial Average nearly joined the S&P 500 and Nasdaq in a bear market while bonds tumbled to their lowest level in years as investors recalibrated their portfolios to a world of persistent inflation and rising interest rates. read more

Towering above it all was the U.S. dollar, which has rocketed to its highest level in 20 years against a basket of currencies, lifted in part by investors seeking shelter from the wild swings in markets.

“Currency exchange rates … are now violent in their moves,” said David Kotok, chairman and chief investment officer at Cumberland Advisors. “When governments and central banks are in the business of setting the interest rates they are shifting the volatility to the currency markets.”

For now, the selloffs across asset classes have drawn few bargain hunters. In fact, many believe things are bound to get worse as tighter monetary policy across the globe raises the risks of a worldwide recession.

“We remain cautious,” said Russ Koesterich, who oversees the Global Allocation Fund for Blackrock, the world’s largest asset manager, noting his allocation to equities is “well below benchmark” and he is also cautious on bonds.

“I think there’s a lot of uncertainty on how quickly inflation will come down, there’s a lot of uncertainty about whether or not the Fed will go through with as an aggressive tightening campaign as they signaled this week.”

Kotok said he is positioned conservatively with high cash levels. “I’d like to see enough of a selloff to make entry attractive in the U.S. stockmarket,” Kotok said.

The fallout from the hectic week exacerbated trends for stocks and bonds that have been in place all year, pushing down prices for both asset classes. But the murky outlook meant that they were still not cheap enough for some investors.

“We think the time to go long in equities is still ahead of us until we see signs that the market has bottomed,” said Jake Jolly, senior investment strategist at BNY Mellon, who has been increasing his allocation to short duration sovereign bonds.

“The market is getting closer and closer to pricing in this recession that is widely expected but it is not yet fully priced in.”

Reuters Graphics

Goldman Sachs strategists on Friday lowered their year-end target for the benchmark U.S. stock index, the S&P 500 (.SPX), to 3,600 from 4,300. The index was last at 3,693.23.

Bond yields, which move inversely to prices, surged across the world. Yields on the benchmark U.S. 10-year Treasury hit their highest level in more than 12 years, while Germany’s two-year bond yield rose above 2% for the first time since late 2008 . In the UK, five year gilts leapt 50 bps — their biggest one-day jump since at least late 1991, according to Refinitiv data.

“At some point, the fears will shift from inflation to growth,” said Matthew Nest, global head of active fixed income at State Street Global Advisors, who thinks bond yields have moved so high they are starting to look “pretty attractive.”

Reuters Graphics

Investors fear things will get worse before they get better.

“The question is now not whether we are going into a recession, it is how deep will the recession be, and might we have some form of financial crisis and major global liquidity shock,” said Mike Riddell, a senior fixed income portfolio manager at Allianz Global Investors in London.

Because monetary policy tends to work with a lag, Riddell estimates the renewed hawkishness from central banks means the global economy will be even weaker by the middle of next year.

“We are of the view that markets are still massively underestimating the global economic growth hit that is coming,” he said.

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Reporting by Davide Barbuscia, Saqib Iqbal Ahmed and David Randall in New York and Dhara Ranasinghe in London; Writing by Lewis Krauskopf; Editing by Ira Iosebashvili, Megan Davies and Daniel Wallis

Our Standards: The Thomson Reuters Trust Principles.

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Bank Of England Raises Rates But Avoids Bolder Hike Like Fed

By Associated Press
September 22, 2022

Surging inflation is a worry for central banks because it saps economic growth by eroding people’s purchasing power.

The Bank of England raised its key interest rate Thursday by another half-percentage point to the highest level in 14 years, but despite facing inflation that outpaces other major economies, it avoided more aggressive hikes made by the U.S. Federal Reserve and other central banks.

It is the Bank of England’s seventh straight move to increase borrowing costs as rising food and energy prices fuel a cost-of-living crisis that is considered the worst in a generation. Despite facing a slumping currency, tight labor market and inflation near its highest level in four decades, officials held off on acting more boldly as they predicted a second consecutive drop in economic output this quarter, an informal definition of recession.

The bank matched its half-point increase last month — the biggest in 27 years — to bring its benchmark rate to 2.25%. The decision was delayed for a week as the United Kingdom mourned Queen Elizabeth II and comes after new Prime Minister Liz Truss’ government unveiled a massive relief package aimed at helping consumers and businesses cope with skyrocketing energy bills.

The new measures have eased uncertainty over energy costs and are “likely to limit significantly further increases” in consumer prices, the bank’s policymakers said. They expected inflation — now at 9.9% — to peak at 11% in October, lower than previously forecast.

“Nevertheless, energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10% over the following few months, before starting to fall back,” the monetary policy committee said.

The bank signaled it is prepared to respond more forcefully at its November meeting if needed. Its decision comes during a busy week for central bank action marked by much more aggressive moves to bring down soaring consumer prices.

The U.S. Federal Reserve hiked rates Wednesday by three-quarters of a point for the third consecutive time and forecast that more large increases were ahead. Also Thursday, the Swiss central bank enacted its biggest-ever hike to its key interest rate.

Three of the British bank’s nine committee members wanted a similar three-quarter-point raise but were outvoted by five who preferred a half-point and one who voted for a quarter-point.

The decision “suggests the Bank of England is concerned about the U.K.’s economic deteriorating outlook amid the looming threat of recession,” said Victoria Scholar, head of investment at interactive investor. “The timid increase will do little to stem the slide in sterling but may avoid inadvertently inducing unnecessary pain for the economy which is already grappling with slowing demand and deteriorating confidence.”

Surging inflation is a worry for central banks because it saps economic growth by eroding people’s purchasing power. Raising interest rates — the traditional tool to combat inflation — reduces demand and therefore prices by making it more expensive to borrow money for big purchases like cars and homes.

Inflation in the United Kingdom hit 9.9% in August, close to its highest level since 1982 and five times higher than the Bank of England’s 2% target. The British pound is at its weakest against the dollar in 37 years, contributing to imported inflation.

To ease the crunch, Truss’ government announced it would cap energy bills for households and businesses that have soared as Russia’s war in Ukraine drives up the price of natural gas needed for heating.

The Treasury is expected to publish a “mini-budget” Friday with more economic stimulus measures, and the bank said it won’t be able to assess how they will affect inflation until its November meeting..

The Bank of England expects gross domestic product to fall by 0.1% in the third quarter, below its August projection of 0.4% growth. That would be a second quarterly decline after official estimates showed output fell by 0.1% in the previous three-month period.

The weakness partly reflects a smaller-than-expected rebound after an extra June holiday to celebrate the queen’s 70 years on the throne and the impact of another public holiday Monday for her funeral, officials said.

The bank avoided pressure to go bigger even as other banks around the world take aggressive action against inflation fueled by the global economy’s recovery from the COVID-19 pandemic and then the war in Ukraine.

This month, Sweden’s central bank raised its key interest rate by a full percentage point, while the European Central Bank delivered its largest-ever rate increase with a three-quarter point hike for the 19 countries that use the euro currency.

But British policymakers signaled they will “respond forcefully, as necessary” if there are signs that inflationary pressure is more persistent than expected, “including from stronger demand.”

The bank said it’s also moving ahead with plans to trim its bond holdings built up under a stimulus program, selling off 80 billion pounds ($90 billion) worth of assets over the next year to bring its portfolio down to 758 billion pounds.

Additional reporting by The Associated Press.

Source: newsy.com

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More Americans Filed Unemployment Claims Last Week

By Associated Press

and Newsy Staff
September 22, 2022

First time applications for jobless aid — which generally reflect layoffs — rose by 5,000 to 213,000 last week, the Labor Department reported.

The number of Americans filing for jobless benefits rose slightly last week with the Federal Reserve pushing hard to cool the economy and tamp down inflation.

Applications for unemployment benefits for the week ending Sept. 17 rose by 5,000 to 213,000, the Labor Department reported Thursday. Last week’s number was revised down by 5,000 to 208,000, the lowest figure since May.

First-time applications generally reflect layoffs.

The four-week average for claims, which evens out some of the weekly volatility, fell by 6,000 to 216,750.

On Wednesday, the Federal Reserve raised its benchmark short-term borrowing rate by another three-quarters of a point in an effort to bring down persistent, decades-high inflation. Though gas prices have steadily retreated since summer, prices for food and other essentials remain elevated enough that the Fed has indicated it will keep raising its benchmark interest rate until prices come back down to normal levels.

Fed officials have pointed to the remarkably resilient U.S. labor market as added justification for raising rates five times this year, including three 75-basis point hikes in a row.

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 point higher than they had envisioned as recently as June.

Fed Chair Jerome Powell said that before Fed officials would consider halting their rate hikes, they want to be confident that inflation is retreating to their 2% target. He noted that the strength of the job market is fueling pay gains that are helping drive up inflation.

He emphasized his belief that curbing inflation is vital to ensuring the long-term health of the job market.

Earlier this month, the Labor Department reported that employers added still-strong 315,000 jobs in August, though less than the average 487,000 a month over the past year. The unemployment rate ticked up to 3.7%, largely because hundreds of thousands of people returned to the job market. Some didn’t find work right away, so the government’s count of unemployed people rose.

The U.S. economy has been a mixed bag this year, with economic growth declining in the first half of 2022. Investors and economist worry that the Fed’s aggressive rate hikes could force companies to cut jobs and tip the economy into a recession.

Online real estate companies RedFin and Compass recently announced job cuts as rising interest rates have cooled the housing market. The National Association of Realtors reported Wednesday that sales of existing homes fell again in August, the seventh straight monthly decline.

Other high-profile layoffs announced in recent months include The Gap, Tesla, Netflix, Carvana and Coinbase.

Additional reporting by The Associated Press.

Source: newsy.com

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Bad News From the Fed? We’ve Been Here Before.

The Federal Reserve’s decision to raise interest rates again is hardly a positive development for anyone with a job, a business or an investment in the stock or bond market.

But it isn’t a great shock, either.

This is all about curbing inflation, which is running at 8.3 percent annually, near its highest rate in 40 years. On Wednesday, the Fed raised the short-term federal funds rate for a third consecutive time, to 3.25 percent, and said it would keep increasing it.

“We believe a failure to restore price stability would mean far greater pain later on,” Jerome H. Powell, the Fed chair, said. He acknowledged that the Fed’s rate increases would raise unemployment and slow the economy.

last time severe inflation tested the mettle of the Federal Reserve was the era of Paul A. Volcker, who became Fed chair in August 1979, when inflation was already 11 percent and still rising. He managed to bring it below 4 percent by 1983, but at the cost of two recessions, sky-high unemployment and horrendous volatility in financial markets.

around 6 percent — and had set the country on a path toward price stability that lasted for decades.

The Great Moderation.” This halcyon period lasted long after he left the Fed, and ended only with the financial crisis of 2007-9. As the Fed now puts it on a website devoted to its history, “Inflation was low and relatively stable, while the period contained the longest economic expansion since World War II.”

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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Biden: Russia ‘Shamelessly Violated’ U.N. Charter In Ukraine

President Biden also highlighted consequences of the invasion for the world’s food supply, pledging $2.9 billion in global food security aid.

President Joe Biden declared at the United Nations on Wednesday that Russia has “shamelessly violated the core tenets” of the international body with its war in Ukraine as he summoned nations around the globe to stand firm in backing the Ukrainian resistance.

Delivering a forceful condemnation of Russia’s seven-month invasion, President Biden said reports of Russian abuses against civilians in Ukraine “should make your blood run cold.” And he said President Vladimir Putin’s new nuclear threats against Europe showed “reckless disregard” for Russia’s responsibilities as a signer of the Treaty on the Non-Proliferation of Nuclear Weapons.

He criticized Russia for scheduling “sham referenda” this week in territory it has forcibly seized in Ukraine.

“A permanent member of the U..N Security Council invaded its neighbor, attempted to erase a sovereign state from the map. Russia has shamelessly violated the core tenets of the U.N. charter,” he told his U.N. audience.

President Biden called on all nations, whether democracies or autocracies, to speak out against Russia’s “brutal, needless war” and to bolster Ukraine’s effort to defend itself.

“We will stand in solidarity against Russia’s aggression, period,” President Biden said.

He also highlighted consequences of the invasion for the world’s food supply, pledging $2.9 billion in global food security aid to address shortages caused by the war and the effects of climate change. President Biden praised a U.N.-brokered effort to create a corridor for Ukrainian grain to be exported by sea, and called on the agreement to be continued despite the ongoing conflict.

The president, during his time at the U.N. General Assembly, also planned to meet Wednesday with new British Prime Minister Liz Truss and press allies to meet an $18 billion target to replenish the Global Fund to Fight AIDS, tuberculosis and malaria.

But the heart of the president’s visit to the U.N. this year was his full-throated censure of Russia as its war nears the seven-month mark. One of Russia’s deputy U.N. ambassadors, Gennady Kuzmin, was sitting in Russia’s seat during President Biden’s speech.

The address came as Russian-controlled regions of eastern and southern Ukraine have announced plans to hold Kremllin-backed referendums in days ahead on becoming part of Russia and as Moscow is losing ground in the invasion. Russian President Putin on Wednesday announced a partial mobilization to call up 300,000 reservists and accused the West of engaging in “nuclear blackmail.”

The White House said the global food security funding includes $2 billion in direct humanitarian assistance through the United States Agency for International Development. The balance of the money will go to global development projects meant to boost the efficiency and resilience of the global food supply.

“This new announcement of $2.9 billion will save lives through emergency interventions and invest in medium- to long-term food security assistance in order to protect the world’s most vulnerable populations from the escalating global food security crisis,” the White House said.

President Biden was confronting no shortage of difficult issues as leaders gather this year.

In addition to the Russian war in Ukraine, European fears that a recession could be just around the corner are heightened. Administration concerns grow by the day that time is running short to revive the Iran nuclear deal and over China’s saber-rattling on Taiwan.

When he addressed last year’s General Assembly, President Biden focused on broad themes of global partnership, urging world leaders to act with haste against the coronavirus, climate change and human rights abuses. And he offered assurances that his presidency marked a return of American leadership to international institutions following Donald Trump’s “America First” foreign policy.

But one year later, global dynamics have dramatically changed.

His Wednesday address comes on the heels of Ukrainian forces retaking control of large stretches of territory near Kharkiv. But even as Ukrainian forces have racked up battlefield wins, much of Europe is feeling painful blowback from economic sanctions levied against Russia. A vast reduction in Russian oil and gas has led to a sharp jump in energy prices, skyrocketing inflation and growing risk of Europe slipping into a recession.

President Biden’s visit to the U.N. also comes as his administration’s efforts to revive the 2015 Iran nuclear deal appears stalled.

The deal brokered by the Obama administration — and scrapped by Trump in 2018 — provided billions of dollars in sanctions relief in exchange for Iran’s agreement to dismantle much of its nuclear program and open its facilities to extensive international inspection.

“While the United States is prepared for a mutual return to the Joint Comprehensive Plan of Action, if Iran steps up to its obligations, the United States is clear: We will not allow Iran to acquire nuclear weapons,” President Biden said.

U.S. National Security Adviser Jake Sullivan said no breakthrough with Iran was expected during the General Assembly and that administration officials would be consulting with fellow signers of the 2015 agreement on the sidelines of this week’s meetings.

This year’s U.N. gathering is back to being a full-scale, in-person event after two years of curtailed activity due to the pandemic. In 2020, the in-person gathering was canceled and leaders instead delivered prerecorded speeches; last year was a mix of in-person and prerecorded speeches. Biden and first lady Jill Biden were set to host a leaders’ reception on Wednesday evening.

China’s President Xi Jinping opted not to attend this year’s U.N. gathering, but his country’s conduct and intentions will loom large.

Weeks after tensions flared across the Taiwan Strait as China objected to the high-profile visit to Taiwan of House Speaker Nancy Pelosi, President Biden called for “peace and stability” and said the U.S. would “oppose unilateral changes in the status quo by either side.” That came days after President Biden repeated that the U.S. would militarily assist Taiwan if China sought to invade.

China’s government on Monday said President Biden’s statement in a CBS “60 Minutes” interview that American forces would defend the self-ruled island was a violation of U.S. commitments on the matter, but it gave no indication of possible retaliation.

President Biden on Wednesday also declared that “fundamental freedoms are at risk in every part of our world,” citing last month’s U.N. human rights office report raising concerns about possible “crimes against humanity” in China’s western region against Uyghurs and other largely Muslim ethnic groups.

He also singled out for criticism the military junta in Myanmar, the Taliban controlling Afghanistan, and Iran, where he said the U.S. supports protests in Iran that sprang up in recent days after a 22-year-old woman died while being held by the morality police for violating the country’s Islamic dress code.

“Today we stand with the brave citizens and the brave women of Iran, who right now are demonstrating to secure their basic rights,” President Biden said. “The United States will always promote human rights and the values enshrined in the U.N. Charter in our own country and around the world.”

Additional reporting by The Associated Press.

Source: newsy.com

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U.S. Stocks Fall Broadly Ahead Of Key Fed Decision On Rates

By Associated Press
September 20, 2022

More than 90% of stocks and every sector in the benchmark index lost ground as traders wait to see how far the Fed will raise interest rates.

Stocks fell broadly in midday trading on Wall Street Tuesday ahead of a key decision on interest rates by the Federal Reserve.

The S&P 500 index fell 1% as of 11:46 a.m. Eastern. More than 90% of stocks and every sector in the benchmark index lost ground as traders wait to see how far the Fed will raise interest rates at its meeting that ends Wednesday.

The Dow Jones Industrial Average fell 312 points, or 1%, to 30,706 and the Nasdaq fell 0.5%.

U.S. crude oil prices fell 2.1% and weighed down energy stocks. Hess fell 1.7%.

Bond yields edged higher. The yield on the 2-year Treasury, which tends to follow expectations for Fed action, rose to 3.97% from 3.95% late Monday and is hovering around its highest levels since 2007.

The 10-year yield, which influences mortgage rates, rose to 3.57% from 3.52% and is trading at its highest levels since 2011.

Stocks have been slumping and Treasury yields rising as the Fed raises the cost of borrowing money in hopes of slowing down the hottest inflation in four decades. The central bank’s aggressive rate hikes have been making markets jittery, especially as Fed officials assert their determination to keep raising rates until they are sure inflation is coming under control.

Fed Chair Jerome Powell bluntly warned in a speech last month that the rate hikes would “bring some pain.”

“He has done everything he possibly can to signal that it’s going to be another aggressive move,” said Liz Young, head of investment strategy at SoFi. “He’s been clear as a bell about what they’ve been focused on.”

The Fed is expected to raise its key short-term rate by a substantial three-quarters of a point for the third time at its meeting on Wednesday. That would lift its benchmark rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level in 14 years, and up from zero at the start of the year.

Wall Street is worried that the rate hikes could go too far in slowing economic growth and push the economy into a recession. Those concerns have been heightened by data showing that the U.S. economy is already slowing and by companies warning about the impact of inflation and supply chain problems to their operations.

Ford fell 9.6% after slashing its third-quarter earnings forecast because a parts shortage will leave it with as many as 45,000 vehicles unfinished on its lots when the quarter ends Sept. 30. Last week, FedEx and General Electric warned investors about damage to their operations from inflation.

The U.S. isn’t alone in suffering from hot inflation or dealing with the impact of efforts to fight high prices.

Sweden’s central bank on Tuesday raised its key interest rate by a full percentage point to 1.75%, catching almost everyone off guard as it scrambles to bring down inflation that was measured at 9% in August.

Consumer inflation in Japan jumped in August to 3%, its highest level since November 1991 but well below the 8% plus readings in the U.S. and Europe. The Bank of Japan is set to have a two-day monetary policy meeting later this week, although analysts expect the central bank to stick to its easy monetary policy.

Min Joo Kang, senior economist, South Korea and Japan, at ING Economics noted inflation remained relatively low in Japan. Energy prices were rising, but not as much as in the U.S. or some parts of Europe. Housing prices haven’t risen and household income have remained stagnant.

Rate decisions from Norway, Switzerland and the Bank of England are next.

Markets in Europe were mostly lower, while markets in Asia gained ground

Additional reporting by the Associated Press.

Source: newsy.com

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U.S. Markets Sink Ahead Of Another Expected Interest Rate Hike

By Associated Press
September 19, 2022

Futures for the Dow Jones industrials and for the S&P 500 each tumbled nearly 1% Monday morning.

Wall Street pointed lower before the opening bell Monday ahead of another expected large interest rate hike from the U.S. Federal Reserve.

Futures for the Dow Jones industrials and for the S&P 500 each tumbled 0.9%.

Britain was observing a day of mourning for Queen Elizabeth II. Japan’s markets were closed for a holiday.

Germany’s DAX lost 0.4%, while the CAC 40 in Paris shed 1%.

Markets have been on edge because of stubbornly high inflation and the increases in interest rates being used to fight it. The fear is that the Fed and other central banks might overshoot their policy targets, triggering a recession.

Most economists forecast that the Fed will jack up its primary lending rate another three-quarters of a point when the central bank’s leaders meet this week.

“Fact is, hawkish expectations built on the ‘hot under the hood’ U.S. inflation print means that markets have good reason to be braced for headwinds amid prospects of higher (for longer) rates; and arguably ‘higher for longer’ USD (dollar) as well,” Vishnu Varathan of Mizuho Bank said in a commentary.

Hong Kong’s Hang Seng lost 1% to 18,565.97 while the Shanghai Composite index shed 0.4% to 3,115.60. Australia’s S&P/ASX 200 gave up 0.3% to 6,719.90. In Seoul, the Kospi sank 1.1% to 2,355.66.

Japan’s central bank meets Wednesday and Thursday amid rising pressure to counter a sharp decline in the yen’s value against the dollar. That has raised costs for businesses and consumers, who must pay more for imports of oil, gas and other necessities.

However the Bank of Japan has held firm so far in maintaining an ultralow benchmark rate of minus 0.1% in hopes of stimulating investment and spending.

On Friday, a stark warning from FedEx about rapidly worsening economic trends elevated anxiety in markets. The S&P 500 fell 0.7%, while the Nasdaq lost almost 1%. The Dow lost almost half percent.

The S&P 500 sank 4.8% for the week, with much of the loss coming from a 4.3% rout on Tuesday following a surprisingly hot report on inflation.

All the major indexes have now posted losses four out of the past five weeks.

FedEx sank 21.4% for its biggest single-day sell-off on record Friday after warning investors that its fiscal first-quarter profit will likely fall short of forecasts because of a drop-off in business. The package delivery service is also shuttering storefronts and corporate offices and expects business conditions to further weaken.

Higher interest rates tend to weigh on stocks, especially the pricier technology sector. The housing sector is also hurting as interest rates rise. Average long-term U.S. mortgage rates climbed above 6% last week for the first time since the housing crash of 2008. The higher rates could make an already tight housing market even more expensive for American homebuyers.

But the rate hikes have yet to cool the economy substantially.

Last week, the U.S. reported that consumer prices rose 8.3% through August compared with last year, the job market is still red-hot and consumers continue to spend, all of which give ammunition to Fed officials who say the economy can tolerate more rate hikes.

In other trading Monday, U.S. benchmark crude lost $2.01 to $83.10 per barrel in electronic trading on the New York Mercantile Exchange. It edged up 1 cent to $85.11 per barrel on Friday.

Brent crude oil gave up $1.93 to $89.42 per barrel.

The dollar strengthened to 143.57 Japanese yen from 142.94 yen. The euro slipped to 99.93 cents from $1.0014.

Additional reporting by The Associated Press.

Source: newsy.com

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