President Biden cheered the report in a statement Thursday morning. “For months, doomsayers have been arguing that the U.S. economy is in a recession, and congressional Republicans have been rooting for a downturn,” he said. “But today we got further evidence that our economic recovery is continuing to power forward.”

By one common definition, the U.S. economy entered a recession when it experienced two straight quarters of shrinking G.D.P. at the start of the year. Officially, however, recessions are determined by a group of researchers at the National Bureau of Economic Research, who look at a broader array of indicators, including employment, income and spending.

Most analysts don’t believe the economy meets that more formal definition, and the third-quarter numbers — which slightly exceeded forecasters’ expectations — provided further evidence that a recession had not yet begun.

But the overall G.D.P. figures were skewed by the international trade component, which often exhibits big swings from one period to the next. Economists tend to focus on less volatile components, which have showed the recovery steadily losing momentum as the year has progressed. One closely watched measure suggested that private-sector demand stalled out almost completely in the third quarter.

Mortgage rates passed 7 percent on Thursday, their highest level since 2002.

“Housing is just the single largest trigger to additional spending, and it’s not there anymore; it’s going in reverse,” said Diane Swonk, chief economist at the accounting firm KPMG. “This has been a stunning turnaround in housing, and when things start to go really quickly, you start to wonder, what are the knock-on effects, what are the spillover effects?”

The third quarter was in some sense a mirror image of the first quarter, when G.D.P. shrank but consumer spending was strong. In both cases, the swings were driven by international trade. Imports, which don’t count toward domestic production figures, soared early this year as the strong economic recovery led Americans to buy more goods from overseas. Exports slumped as the rest of the world recovered more slowly from the pandemic.

Both trends have begun to reverse as American consumers have shifted more of their spending toward services and away from imported goods, and as foreign demand for American-made goods has recovered. Supply-chain disruptions have added to the volatility, leading to big swings in the data from quarter to quarter.

Few economists expect the strong trade figures from the third quarter to continue, especially because the strong dollar will make American goods less attractive overseas.

Jim Tankersley contributed reporting.

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World is in its ‘first truly global energy crisis’ – IEA’s Birol

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SINGAPORE, Oct 25 (Reuters) – Tightening markets for liquefied natural gas (LNG) worldwide and major oil producers cutting supply have put the world in the middle of “the first truly global energy crisis”, the head of the International Energy Agency (IEA) said on Tuesday.

Rising imports of LNG to Europe amid the Ukraine crisis and a potential rebound in Chinese appetite for the fuel will tighten the market as only 20 billion cubic meters of new LNG capacity will come to market next year, IEA Executive Director Fatih Birol said during the Singapore International Energy Week.

At the same time the recent decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, to cut 2 million barrels per day (bpd) of output is a “risky” decision as the IEA sees global oil demand growth of close to 2 million bpd this year, Birol said.

“(It is) especially risky as several economies around the world are on the brink of a recession, if that we are talking about the global recession…I found this decision really unfortunate,” he said.

Soaring global prices across a number of energy sources, including oil, natural gas and coal, are hammering consumers at the same time they are already dealing with rising food and services inflation. The high prices and possibility of rationing are potentially hazardous to European consumers as they prepare to enter the Northern Hemisphere winter.

Europe may make it through this winter, though somewhat battered, if the weather remains mild, Birol said.

“Unless we will have an extremely cold and long winter, unless there will be any surprises in terms of what we have seen, for example Nordstream pipeline explosion, Europe should go through this winter with some economic and social bruises,” he added.

For oil, consumption is expected to grow by 1.7 million bpd in 2023 so the world will still need Russian oil to meet demand, Birol said.

G7 nations have proposed a mechanism that would allow emerging nations to buy Russian oil but at lower prices to cap Moscow’s revenues in the wake of the Ukraine war.

Birol said the scheme still has many details to iron out and will require the buy-in of major oil importing nations.

A U.S. Treasury official told Reuters last week that it is not unreasonable to believe that up to 80% to 90% of Russian oil will continue to flow outside the price cap mechanism if Moscow seeks to flout it.

“I think this is good because the world still needs Russian oil to flow into the market for now. An 80%-90% is good and encouraging level in order to meet the demand,” Birol said.

While there is still a huge volume of strategic oil reserves that can be tapped during a supply disruption, another release is not currently on the agenda, he added.

ENERGY SECURITY DRIVES RENEWABLES GROWTH

The energy crisis could be a turning point for accelerating clean sources and for forming a sustainable and secured energy system, Birol said.

“Energy security is the number one driver (of the energy transition),” said Birol, as countries see energy technologies and renewables as a solution.

The IEA has revised up the forecast of renewable power capacity growth in 2022 to a 20% year-on-year increase from 8% previously, with close to 400 gigawatts of renewable capacity being added this year.

Many countries in Europe and elsewhere are accelerating the installation of renewable capacity by cutting the permitting and licensing processes to replace the Russian gas, Birol said.

Reporting by Florence Tan, Muyu Xu and Emily Chow; Editing by Jacqueline Wong and Christian Schmollinger

Our Standards: The Thomson Reuters Trust Principles.

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Fed to hike by 75 bps again on Nov. 2, should pause when inflation halves -economists: Reuters poll

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BENGALURU, Oct 25 (Reuters) – The U.S. Federal Reserve will go for its fourth consecutive 75 basis point interest rate hike on Nov. 2, according to economists polled by Reuters, who said the central bank should not pause until inflation falls to around half its current level.

Its most aggressive tightening cycle in decades has brought with it ever bigger recession risks. The survey also showed a median 65% probability of one within a year, up from 45%.

Still, a strong majority of economists, 86 of 90, predicted policymakers would hike the federal funds rate by three quarters of a percentage point to 3.75%-4.00% next week as inflation remains high and unemployment is near pre-pandemic lows.

Results in the poll are in line with interest rate futures pricing. Only four respondents predicted a 50 basis point move.

“The front-loading of policy rate tightening we have seen up to now has been aimed at getting to a positive real fed funds rate at the start of 2023,” said Jan Groen, chief U.S. macro strategist at TD Securities, referring to rates adjusted for inflation.

“Instead of a pivot, in our view, the Fed is signaling that they foresee shifting from front-loading up to December, towards more of a more grinding pace of hikes from then onward.”

A majority of economists in the Oct. 17-24 poll forecast another 50 basis point hike in December, taking the funds rate to 4.25%-4.50% by end-2022. That matches the Fed’s “dot plot” median projection.

The funds rate was expected to peak at 4.50%-4.75% or higher in Q1 2023, according to 49 of 80 economists. But the risks to that terminal rate were skewed to the upside, according to all but one of the 40 who answered an additional question.

Fed officials have begun contemplating when they should slow the pace of rate hikes as they take stock of their impact given it takes many months for any rate move to take effect.

Asked around what level of sustained inflation the Fed should consider pausing – currently running above 8% according to the consumer price index (CPI) – the median from 22 respondents said 4.4%, according to that measure.

The Fed targets the personal consumption expenditures (PCE) index, but the survey suggests roughly half the current rate of inflation ought to be a turning point. PCE inflation was forecast above target until 2025 at least.

CPI inflation was not expected to halve until Q2 2023, according to the poll, averaging 8.1%, 3.9% and 2.5% in 2022, 2023 and 2024, respectively.

“Fed officials have indicated that pausing is only possible after ‘clear and compelling’ evidence inflation has moderated,” said Brett Ryan, senior U.S. economist at Deutsche Bank.

“With the Fed continuing its aggressive tightening to rein in persistent inflation, we expect a moderate recession likely to begin in Q3 next year as the real growth would dip negative and the unemployment rate will rise substantially.”

Next year the economy was expected to expand just 0.4% – a forecast that has been downgraded in each consecutive monthly Reuters poll since the Fed first started hiking in March – after growing 1.7% on average this year.

The unemployment rate was expected to average 3.7% this year before rising to 4.4% and 4.8% in 2023 and 2024, respectively, an upgrade from the previous poll but significantly lower than the highs seen in previous recessions.

Still, the chances of a sharp rise in unemployment in the United States over the coming year were high, according to over half of respondents to an additional question, 23 of 41. Eighteen said the chances were low.

(For other stories from the Reuters global economic poll:)

Reporting by Prerana Bhat; Additional reporting by Indradip Ghosh; Polling by Dhruvi Shah, Vijayalakshmi Srinivasan and Mumal Rathore; Editing by Hari Kishan, Ross Finley and Andrea Ricci

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U.K. Live Updates: Rishi Sunak Will Become the U.K.’s Next Prime Minister on Tuesday

Rishi Sunak already has experience steering Britain’s public finances through a crisis, but that is unlikely to make tackling the country’s economic challenges any less daunting.

As chancellor of the Exchequer from February 2020 to July this year, Mr. Sunak spent heavily to shield households and businesses from some of the economic fallout from the coronavirus pandemic. Back then, inflation was low and the Bank of England was buying government debt, helping keep interest rates low as borrowing ballooned to pay for the large increase in spending.

Now, Mr. Sunak, who is set to be Britain’s next prime minister after being named leader of the Conservative Party on Monday, will face a very different economic backdrop: The inflation rate has topped 10 percent, the highest in 40 years and, like many countries, the economy is slowing down and at risk of falling into a recession. Meanwhile, the Bank of England is continuing to raise interest rates to curb inflation, and won’t be there to purchase government debt because starting next month it is planning to slowly sell its holdings of bonds. That means the government will rely more on investors, who have been demanding higher interest rates, than the central bank to buy bonds.

In these circumstances, Mr. Sunak has several urgent issues to resolve. One is how to support households squeezed by rising energy costs, after Russia’s war in Ukraine introduced huge volatility into global energy markets. As things stand, household bills have been frozen from this month through to April at an average of 2,500 pounds ($2,826) a year, but after that the government is expected to develop a cheaper policy to help the most vulnerable households. A similar policy is in place to help businesses for six months.

After setting aside tens of billions of pounds to keep energy bills down, the government is also under pressure to show how it will keep borrowing in check, in an effort to restore Britain’s fiscal credibility in markets. Jeremy Hunt, the finance minister recently installed by Liz Truss but a supporter of Mr. Sunak, is scheduled to deliver a fiscal statement on Oct. 31 that he said would show Britain’s debt falling as a share of national income over the medium term.

To bring down debt levels, “decisions of eye-watering difficulty” on spending and tax will need to be made, Mr. Hunt has said. He said he will be asking every government department to find ways to save money despite their already stretched budgets. At the same time, Mr. Hunt said taxes are likely to rise as well. Mr. Sunak, however, is not obligated to keep Mr. Hunt as chancellor or stick to the current timetable for the fiscal statement, though many analysts expect him to.

“The United Kingdom is a great country, but there is no doubt we face a profound economic challenge,” Mr. Sunak said on Monday in a short speech. “We now need stability and unity.”

At this stage, Mr. Sunak hasn’t revealed details about his economic plan as prime minister but investors appear to be taking the prospect of his premiership in their stride.

The pound is trading at about $1.13, a little higher than it was on Sept. 22 before the tax-cutting plan by Ms. Truss that roiled markets, pushing the pound steeply lower and borrowing costs higher. Government bonds yields have fallen from their recent highs. On Monday afternoon, the yield on 10-year bonds was at about 3.75 percent, after closing at 4 percent on Friday. It’s the lowest level since the fiscal statement by Ms. Truss’s government in September.

Lower interest rates will be a comfort to Mr. Sunak. For one, lower rates will shrink the amount of money the Treasury will need to set aside for interest rate payments, which could ease spending cuts and tax increases. But there are other reminders of the economic difficulties Britain faces.

On Monday, a measure of economic activity in Britain dropped, as the services industry posted its worst monthly decline since January 2021, according to the Purchasing Managers’ Index which measures economic trends. The index for both services and manufacturing activity fell to 47.2 points. A reading below 50 means a contraction in activity.

The data showed that the pace of economic decline was gathering momentum, said Chris Williamson, an economist at S&P Global Market Intelligence.

And on Friday, the credit ratings agency Moody’s changed its outlook on Britain to negative, from stable, while reaffirming the country’s current Aa3 investment grade rating. A lower credit rating tends to lead to higher government borrowing costs.

Moody’s said the outlook was changed to negative because of the “heightened unpredictability in policymaking amid weaker growth prospects and high inflation.” There was also a risk that increased borrowing would challenge Britain’s debt affordability, especially if there was a “sustained weakening in policy credibility.”

These are just the latest in a laundry list of the government’s economic concerns. They include supporting low-income households against the rising cost of living, encouraging investment to improve weak productivity growth, smoothing Britain’s trading relationship with the European Union and growing the labor market to ensure businesses can find people with the right skills.

“We need a clear long-term vision of how the new prime minister will deal with the challenges ahead,” Shevaun Haviland, the director general of the British Chambers of Commerce, said in a statement, “and create the business conditions that allow firms, and the communities that rely on them, to thrive.” 

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Liz Truss’s Departure Creates Economic Uncertainty As Inflation Rises

The fall of Liz Truss, Britain’s prime minister for just six tumultuous weeks, has plunged the nation into another phase of economic uncertainty.

When Ms. Truss announced her resignation on Thursday as Conservative Party leader, saying she would stand down as prime minister, the markets that had rebelled against her fiscal policies engaged in a weak and short-lived rally. Investors were left wondering who would be the new leader and what lay ahead for Britain’s economic policy. On Friday morning, government bonds were falling, pushing yields higher, and the pound was dropping.

“It’s a leap into the unknown,” said Antoine Bouvet, an interest rates strategist at ING.

Overall the initial reaction, Mr. Bouvet added, suggested that investors expect that a new prime minister will go ahead with fiscal plans generally supported by the market. But he said it was too early to be sure.

“Let’s see who gets elected leader and what they say on fiscal policy,” he said.

The next prime minister, the third this year, will face a long list of economic challenges. Annual inflation topped 10 percent last month as food prices rose at their fastest pace in more than 40 years. Wages haven’t kept up with rising prices, bringing about a cost-of-living crisis and labor unrest. There is a deepening slump in consumer spending with data on Friday showing people were buying less than before the pandemic. Interest rates are set to rise even as the economy stagnates. And Russia’s war in Ukraine is still rippling through the global economy, especially the energy market.

provoked extraordinary volatility in markets at the end of September when her first chancellor of the Exchequer, Kwasi Kwarteng, announced a plan for widespread tax cuts and huge spending, to be financed by borrowing. Amid the highest inflation in four decades and rising interest rates, markets deemed the plan, delivered without any independent assessment, a rupture in Britain’s reputation for fiscal credibility. The pound dropped to a record low, and government bond yields shot up so violently the central bank was forced to intervene to stop a crisis in the pension funds industry.

began to settle markets. However, bond yields remain noticeably higher than they were before the September tax plan was announced, as investors still demand a higher premium to lend to Britain. On Thursday, 10-year government bond yields closed at 3.91 percent, up from 3.50 percent on Sept. 22, the day before Mr. Kwarteng’s policy announcement.

Ms. Truss’s tenure as prime minister, the shortest in British history, was undone by economic policies that harked back to the trickle-down economics of the 1980s, built on the belief that tax cuts for the wealthy were fair and would lead to investment and economic growth that would benefit everyone.

fixed rates have settled higher.

Meanwhile, the new government is likely to be focused on restoring the government’s fiscal credibility. Mr. Hunt is set to deliver a “medium-term fiscal plan,” with spending and tax measures, on Oct. 31. He said he expected to make “difficult” spending cuts as he planned to show that debt levels were falling in the medium term.

It will be accompanied by an independent assessment of the fiscal and economic impact of the policies by the Office for Budget Responsibility, a government watchdog.

While markets have cheered the government’s promise to have its policies independently reviewed, questions remain about how the gap in the public finances can be closed. Economists say there is very little room in stretched department budgets to make cuts. That has led to concerns of a return to austerity measures, reminiscent of the spending cuts after the 2008 financial crisis.

There is a danger,” Mr. Chadha said, “that we end up with tighter fiscal policy than actually is appropriate given the shock that many households are suffering.” This could make it harder to support people suffering amid rising food and energy prices. But Mr. Chadha argues that it’s clear what needs to happen next: a complete elimination of unfunded tax cuts and careful planning on how to support vulnerable households.

The chancellor could also end up having a lot more autonomy over fiscal policy than the prime minister, he added.

“The best outcome for markets would be a rapid rallying of the parliamentary Conservative Party around a single candidate” who would validate Mr. Hunt’s approach and the timing of the Oct. 31 report, Trevor Greetham, a portfolio manager at Royal London Asset Management, said in a written comment.

Three days after the fiscal statement, on Nov. 3, Bank of England policymakers will announce their next interest rate decisions.

Bond investors are trying to parse how the central bank will react to the rapidly changing fiscal news. On Thursday, before Ms. Truss’s resignation, Ben Broadbent, a member of the central bank’s rate-setting committee, indicated that policymakers might not need to raise interest rates as much as markets currently expect. Traders are betting that the bank will raise rates above 5 percent next year, from 2.25 percent.

The bank could raise rates less than expected next year partly because the economy is forecast to shrink over the year. The International Monetary Fund predicted that the British economy would go from 3.6 percent growth this year to a 0.3 percent contraction next year.

That’s a mild recession compared with some other forecasts, but it would only compound the longstanding economic problems that Britain faced, including weak investment, low productivity growth and businesses’ inability to find employees with the right skills. These were among the challenges that Ms. Truss said she would resolve by shaking up the status quo and targeting economic growth of 2.5 percent a year.

Most economists didn’t believe that “Trussonomics,” as her policies were called, would deliver this economic growth. Instead, they predicted the policies would prolong the country’s inflation problem.

Despite the change in leadership, analysts don’t expect a big rally in Britain’s financial markets. The nation’s international standing could take a long time to recover.

“It takes years to build a reputation and one day to undo it,” Mr. Bouvet said, adding, “Investors will come progressively back to the U.K.,” but it won’t be quickly.

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An Uptick in Elder Poverty: A Blip, or a Sign of Things to Come?

“We’re getting more and more older people who lived through this experiment with do-it-yourself pensions, and they’re coming into this age group without the same kind of incomes that older people have,” said Teresa Ghilarducci, an economics professor at the New School who specializes in retirement policy. “I don’t think it’s a blip.”

Even though the share of elderly people officially below the poverty line is low by historical standards in the United States, it remains among the highest in the developed world, according to the Organization for Economic Cooperation and Development. The average poverty rate for older Americans also masks far higher shares among more vulnerable groups, with nearly one in five Black and Hispanic women 65 or older falling below the official poverty threshold in 2021. It’s higher for single people, too — a reality forced on hundreds of thousands of older Americans whose spouses died of Covid-19.

The poverty rate is also not a bright line when it comes to financial hardship. It doesn’t take into account debt, which more seniors have accumulated since the Great Recession. Moreover, nearly one in four people 65 or older make less than 150 percent of the federal poverty line, or $19,494 on average for those living alone. Another measure, developed by the Gerontology Institute at the University of Massachusetts Boston and called the Elder Index, finds that it takes $22,476 for a single older person in good health with no mortgage to cover basic needs, with the cost escalating for renters and those with health problems.

“To some extent we’re splitting hairs when we talk about people who fall just above and just below, because they’re all struggling,” said Jan Mutchler, a demographer at the University of Massachusetts at Boston who helped devise the Elder Index. “The assumptions that go into what we’re calling hardship are just flawed.”

That’s true for Juanita Brown, 77, who lives on her own in Galax, a small town in Virginia’s Blue Ridge Mountains. A farmer’s daughter, she worked as a nanny, and then a certified nursing assistant, and then a preschool teacher. Her husband worked in the local textile industry, and after raising two children, they had built a substantial nest egg.

But then Ms. Brown’s mother developed Alzheimer’s disease and couldn’t support herself. Ms. Brown stopped working to take care of her, which cost another $500 per month in expenses. Her husband got prostate cancer, which required extended trips to the hospital in Winston-Salem, N.C.

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EXCLUSIVE Fed’s Bullard favors ‘frontloading’ rate hikes now, with wait-and-see stance in 2023

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WASHINGTON, Oct 14 (Reuters) – A “hotter-than-expected” September inflation report doesn’t necessarily mean the Federal Reserve needs to raise interest rates higher than officials projected at their most recent policy meeting, St. Louis Fed President James Bullard said on Friday, though it does warrant continued “frontloading” through larger hikes of three-quarters of a percentage point.

In a Reuters interview, Bullard said U.S. Consumer Price Index data for September, which was released on Thursday, showed inflation had become “pernicious” and difficult to arrest, and therefore “it makes sense that we’re still moving quickly.”

After delivering a fourth straight 75-basis-point hike at its policy meeting next month, Bullard said “if it was today, I’d go ahead with” a hike of the same magnitude in December, though he added it was “too early to prejudge” what to do at that final meeting of the year.

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If the Fed follows through with two more 75-basis-point hikes this year, its policy rate would end 2022 in a range of 4.50%-4.75%.

In what were tempered remarks for one of the Fed’s most hawkish voices recently, Bullard said that at that point he would let further increases rest on incoming data.

“I do think 2023 should be a data-dependent sort of year. It’s two-sided risk. It is very possible that the data would come in a way that forces the (Federal Open Market) Committee higher on the policy rate. But it’s also possible that you get a good disinflationary dynamic going, and in that situation the committee could keep the policy rate and hold it steady,” Bullard said a day after the U.S. government reported that consumer price inflation remained above 8% last month.

The possibility of a fifth larger-than-usual increase in December is “a little more frontloading than what I’ve said in the past,” he added.

But the trajectory mapped out by Bullard would still leave the target policy rate at the median level that Fed officials projected last month they would need to reach – evidence of a broad consensus at the central bank around at least a temporary stopping point after a year in which they have ratcheted rate expectations steadily higher.

Even if some of Bullard’s colleagues want to reach that point in smaller interim steps and not until early next year, Bullard said he regards faster increases as warranted because the U.S. labor market remains strong, and “there’s just not much indication that we’re getting the disinflation that we’re looking for.”

Though some investors and economists expect the Fed will need to lift its policy rate even further, to 5% or higher, Bullard said, “I wouldn’t predict that now … If that happens it will be because inflation doesn’t come down the way we’re hoping in the first half of 2023 and we continue to get hot inflation reports.”

The level he has penciled in for the end of the year is adequate, he believes, to lower the Fed’s closely-watched core personal consumption expenditures inflation index to below 3% next year, a long way back to the central bank’s 2% target.

‘SOFT LANDING’

Bullard said that despite the sense of turbulence in financial markets, there was “still a fair amount of potential for a soft landing,” with the United States likely to avoid a recession and companies reluctant to lay off workers who have been hard to hire during the post-pandemic economic reopening.

Warnings about recession risk may be distorted in part by inflation itself, Bullard said, with short-term bond yields driven higher than longer-term ones not for lack of faith in the economy, an “inversion” of the yield curve that shows investors betting on a recession, but because of the premium charged for the inflation taking place now.

Volatility in markets is to be expected when rates rise, he said, but may settle after a period of adjustment.

“It’s the transition that throws everybody for a loop,” Bullard said. But after that, the economy “could grow just as fast at the higher interest rates,” he said.

Asked about the sense that overseas events, such as the tension between the Bank of England and the current British government, may risk broader financial problems, Bullard said that his regional bank’s index of financial stress showed it to be low.

Compared to the sorts of serious market seizures seen during the financial crisis in 2008 or the start of the COVID-19 pandemic in early 2020, “I don’t think we’re in a situation where global markets are facing a lot of stress of that type.”

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Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao

Our Standards: The Thomson Reuters Trust Principles.

Howard Schneider

Thomson Reuters

Covers the U.S. Federal Reserve, monetary policy and the economy, a graduate of the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, economics reporter and on the local staff of the Washington Post.

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Labor Hoarding Could be Good News for the Economy

PROVO, Utah — Chad Pritchard and his colleagues are trying everything to staff their pizza shop and bistro, and as they do, they have turned to a new tactic: They avoid firing employees at all costs.

Infractions that previously would have led to a quick dismissal no longer do at the chef’s two places, Fat Daddy’s Pizzeria and Bistro Provenance. Consistent transportation issues have ceased to be a deal breaker. Workers who show up drunk these days are sent home to sober up.

Employers in Provo, a college town at the base of the Rocky Mountains where unemployment is near the lowest in the nation at 1.9 percent, have no room to lose workers. Bistro Provenance, which opened in September, has been unable to hire enough employees to open for lunch at all, or for dinner on Sundays and Mondays. The workers it has are often new to the industry, or young: On a recent Wednesday night, a 17-year-old could be found torching a crème brûlée.

Down the street, Mr. Pritchard’s pizza shop is now relying on an outside cleaner to help his thin staff tidy up. And up and down the wide avenue that separates the two restaurants, storefronts display “Help Wanted” signs or announce that the businesses have had to temporarily reduce their hours.

added 263,000 workers in September, fewer than in recent months but more than was normal before the pandemic. Unemployment is at 3.5 percent, matching the lowest level in 50 years, and average hourly earnings picked up at a solid 5 percent clip compared with a year earlier.

roughly 20 percent and sent unemployment to above 10 percent. Few economists expect an outcome that severe this time since today’s inflation burst has been shorter-lived and rates are not expected to climb nearly as much.

are still nearly two open jobs for every unemployed worker — companies may be hesitant to believe that any uptick in worker availability will last.

“There’s a lot of uncertainty about how big of a downturn are we facing,” said Benjamin Friedrich, an associate professor of strategy at Northwestern University’s Kellogg School of Management. “You kind of want to be ready when opportunities arise. The way I think about labor hoarding is, it has option value.”

Instead of firing, businesses may look for other ways to trim costs. Mr. Pritchard in Provo and his business partner, Janine Coons, said that if business fell off, their first resort would be to cut hours. Their second would be taking pay cuts themselves. Firing would be a last resort.

The pizzeria didn’t lay off workers during the pandemic, but Mr. Pritchard and Ms. Coons witnessed how punishing it can be to hire — and since all of their competitors have been learning the same lesson, they do not expect them to let go of their employees easily even if demand pulls back.

“People aren’t going to fire people,” Mr. Pritchard said.

But economists warned that what employers think they will do before a slowdown and what they actually do when they start to experience financial pain could be two different things.

The idea that a tight labor market may leave businesses gun-shy about layoffs is untested. Some economists said that they could not recall any other downturn where employers broadly resisted culling their work force.

“It would be a pretty notable change to how employers responded in the past,” said Nick Bunker, director of North American economic research for the career site Indeed.

And even if they do not fire their full-time employees, companies have been making increased use of temporary or just-in-time help in recent months. Gusto, a small-business payroll and benefits platform, conducted an analysis of its clients and found that the ratio of contractors per employee had increased more than 60 percent since 2019.

If the economy slows, gigs for those temporary workers could dry up, prompting them to begin searching for full-time jobs — possibly causing unemployment or underemployment to rise even if nobody is officially fired.

Policymakers know a soft landing is a long shot. Jerome H. Powell, the Fed chair, acknowledged during his last news conference that the Fed’s own estimate of how much unemployment might rise in a downturn was a “modest increase in the unemployment rate from a historical perspective, given the expected decline in inflation.”

But he also added that “we see the current situation as outside of historical experience.”

The reasons for hope extend beyond labor hoarding. Because job openings are so unusually high right now, policymakers hope that workers can move into available positions even if some firms do begin layoffs as the labor market slows. Companies that have been desperate to hire for months — like Utah State Hospital in Provo — may swoop in to pick up anyone who is displaced.

Dallas Earnshaw and his colleagues at the psychiatric hospital have been struggling mightily to hire enough nurse’s aides and other workers, though raising pay and loosening recruitment standards have helped around the edges. Because he cannot hire enough people to expand in needed ways, Mr. Earnshaw is poised to snap up employees if the labor market cools.

“We’re desperate,” Mr. Earnshaw said.

But for the moment, workers remain hard to find. At the bistro and pizza shop in downtown Provo, what worries Mr. Pritchard is that labor will become so expensive that — combined with rapid ingredient inflation — it will be hard or impossible to make a profit without lifting prices on pizzas or prime rib so much that consumers cannot bear the change.

“What scares me most is not the economic slowdown,” he said. “It’s the hiring shortage that we have.”

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Global Fallout From Rate Moves Won’t Stop the Fed

The Federal Reserve has embarked on an aggressive campaign to raise interest rates as it tries to tame the most rapid inflation in decades, an effort the central bank sees as necessary to restore price stability in the United States.

But what the Fed does at home reverberates across the globe, and its actions are raising the risks of a global recession while causing economic and financial pain in many developing countries.

Other central banks in advanced economies, from Australia to the eurozone, are also lifting rates rapidly to fight their inflation. And as the Fed’s higher interest rates attract money to the United States — pumping up the value of the dollar — emerging-market economies are being forced to raise their own borrowing costs to try to stabilize their currencies to the extent possible.

Altogether, it is a worldwide push toward more expensive money unlike anything seen before in the 21st century, one that is likely to have serious ramifications.

warned the damage could be particularly acute in poorer nations. Developing economies had already been dealing with a cost-of-living crisis because of soaring food and fuel prices, and now their American imports are growing steadily more expensive as the dollar marches higher.

The Fed’s moves have spurred market volatility and worries about financial stability, as higher rates elevate the value of the U.S. dollar, making it harder for emerging-market borrowers to pay back their dollar-denominated debt.

It is a recipe for globe-spanning turmoil and even recession. Despite that, the Fed is poised to continue raising interest rates. That’s because the Fed, like central banks around the world, is in charge of domestic economy goals: It’s supposed to keep inflation slow and steady while fostering maximum employment. While occasionally called “central banker to the world” because of the dollar’s foremost position, the Fed goes about its day-to-day business with its eye squarely on America.

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.

The threat facing the global economy — including the Fed’s role in it — is expected to dominate the conversation next week as economists and government officials convene in Washington for the annual meeting of the International Monetary Fund and World Bank.

In a speech at Georgetown University on Thursday, Kristalina Georgieva, the managing director of the I.M.F., offered a grim assessment of the world economy and the tightrope that central banks are walking.

“Not tightening enough would cause inflation to become de-anchored and entrenched — which would require future interest rates to be much higher and more sustained, causing massive harm on growth and massive harm on people,” Ms. Georgieva said. “On the other hand, tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.”

Noting that inflation remains stubbornly high and broad-based, she added: “Central banks have to continue to respond.”

The World Bank warned last month that simultaneous interest-rate increases around the world could trigger a global recession next year, causing financial crises in developing economies. It urged central banks in advanced economies to be mindful of the cross-border “spillover effects.”

“To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production,” David Malpass, the World Bank president, said.

Trade and Development Report said.

So far, major central banks have shown little appetite for stopping their inflation-busting campaigns. The Fed, which has made five rate increases this year, has signaled that it plans to raise borrowing costs even higher. Most officials expect to increase rates by at least another 1.25 percentage points this year, taking the policy rate to a range of 4.25 to 4.5 percent from the current 3 to 3.25 percent.

Even economies that are facing a pronounced slowdown have been lifting borrowing costs. The European Central Bank raised rates three-quarters of a point last month, even though the continent is approaching a dark winter of slowing growth and crushing energy costs.

according to the World Bank. Food costs in particular have driven millions further into extreme poverty, exacerbating hunger and malnutrition. As the dollar surge makes a range of imports pricier for emerging markets, that situation could worsen, even as the possibility of financial upheaval increases.

“Low-income developing countries in particular face serious risks from food insecurity and debt distress,” Ngozi Okonjo-Iweala, director-general of the World Trade Organization, said during a news conference this week.

In Africa, officials have been urging the I.M.F. and Group of 20 nations to provide more emergency assistance and debt relief amid inflation and rising interest rates.

“This unprecedented shock further destabilizes the weakest economies and makes their need for liquidity even more pressing, to mitigate the effects of widespread inflation and to support the most vulnerable households and social strata, especially young people and women,” Macky Sall, chairman of the African Union, told leaders at the United Nations General Assembly in September.

To be sure, central bankers in big developed economies like the United States are aware that they are barreling over other economies with their policies. And although they are focused on domestic goals, a severe weakening abroad could pave the way for less aggressive policy because of its implications for their own economic outlooks.

Waning demand from abroad could ease pressure on supply chains and reduce prices. If central bankers decide that such a chain reaction is likely to weigh on their own business activity and inflation, it may give them more room to slow their policy changes.

“The global tightening cycle is something that the Fed has to take into account,” said Megan Greene, global chief economist for the Kroll consulting firm. “They’re interested in what is going on in the rest of the world, inasmuch as it affects their ability to achieve their targets.”

his statement.

But many global economic officials — including those at the Fed — remain focused on very high inflation. Investors expect them to make another large rate increase when they meet on Nov. 1-2.

“We’re very attentive” to international spillovers to both emerging markets and advanced economies, Lisa D. Cook, a Fed governor, said during a question-and-answer session on Thursday. “But our mandate is domestic. So we’re very focused on inflation as it evolves in this country.”

Raghuram Rajan, a former head of India’s central bank and now an economist at the University of Chicago, has in the past pushed the Fed to take foreign conditions into account as it sets policy. He still thinks that measures like bond-buying should be pursued with an eye on global spillovers.

But amid high inflation, he said, central banks are required to pay attention to their own mandates to achieve price stability — even if that makes for a stronger dollar, weaker currencies and more pain abroad.

“The basic problem is that the world of monetary policy dances to the Fed’s tune,” Mr. Rajan said, later adding: “This is a problem with no easy solutions.”

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Investors fly blind as key Bank of Canada inflation gauge misfires

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OTTAWA, Oct 4 (Reuters) – Canadian economists are scrambling for a reliable measure to track underlying inflation as large and frequent revisions have dented the credibility of a key Bank of Canada yardstick, even as the central bank said it was sticking with its core measures.

Canada’s central bank has three preferred measures of core inflation – CPI-common, CPI-median and CPI-trim. CPI-common, once touted as the best gauge of the economy’s performance, has been subject to repeated revisions since the start of this year.

Those same revisions show that price moves originally identified as transitory turned out not to be transitory at all, highlighting the measure’s ineffectiveness when prices rise rapidly and calling into question its value, said analysts.

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“I believe the steep upward revisions to common have rendered it useless as a policy guide,” said Doug Porter, chief economist at BMO Capital Markets. “It missed the inflation boat at the start of the year and sent an entirely misleading signal to policymakers.”

Reuters Graphics

To estimate core inflation, CPI-common measures all the components of the consumer price index that are moving together and separates out those that appear to be fluctuating due to sector-specific events. By contrast, both CPI-trim and CPI-median operate by filtering out extreme price movements.

CPI-common was almost never revised when inflation was close to the Bank of Canada’s 2% target. But with prices rising faster than they have in decades, it is now being revised and revised again each month.

These revisions are happening because the statistical model is picking up more co-movement in price, so the entire series has to be re-calculated each month, said Statistics Canada.

“Essentially, this means that more CPI goods and services are moving in common, or that inflation is more broad-based now than it has been in the past,” the agency said in a statement.

‘LEAST VOLATILE’

Despite the revisions, the Bank of Canada will “continue to look at all of our core inflation measures” as it works to get inflation back to target, said spokesman Alex Paterson.

“One reason why the Bank uses three different core measures is to make sure we’re considering different price perspectives when judging the underlying trend of inflationary pressure,” he said in an email.

Governor Tiff Macklem is due to give a speech on the current economic situation on Thursday, with a news conference to follow.

The three core measures were introduced in 2017 to replace CPIX, which is the headline inflation figure excluding eight of the most volatile components in a basket of commonly used items.

A 2019 report by Bank of Canada analysts, which evaluated the performance of seven core measures from 1992 to 2018, noted CPI-common was the “least volatile” and seemed “less prone to revisions and sector-specific shocks.”

But it was developed at a time when inflation rarely drifted out of the Bank of Canada’s 1%-3% control range. Inflation has now been above 3% for 17 months and was at 7.0% in August. read more

With CPI-common’s usefulness now in question, and the odds of a recession rising, the central bank should be taking a hard look at how it tracks core inflation, said analysts.

“The Bank’s challenge is walking the extremely fine line between tightening enough to get inflation back to target while not tightening so much that it causes a major recession,” said Stephen Brown, senior Canada economist at Capital Economics.

Some analysts say the Bank of Canada should return to CPIX or simply track how many index components are rising more quickly than the 2% target.

Others say the best gauge is inflation excluding energy and food, because it is easy to explain and is similar to how the United States measures underlying price pressures.

“The BoC needs to address how it has over-complicated core inflation and what measures it follows,” Derek Holt, head of capital markets economics at Scotiabank, said in a note.

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Reporting by Julie Gordon in Ottawa and Fergal Smith in Toronto
Editing by Deepa Babington

Our Standards: The Thomson Reuters Trust Principles.

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