US Federal Reserve Governor Christopher Waller signaled Thursday he may support a full percentage point interest rate hike this month — the biggest increase in more than 30 years and a further indication of the central bank’s determination to crush sky-high inflation.
And although rising borrowing costs and blistering price surges have raised fears of recession, Waller said he believes the economy can avoid a downturn thanks to the strong US job market.
The Fed in March began aggressively raising borrowing costs to try to cool demand amid the impact of the Ukraine war, which has hit global supplies of food and oil, and Covid-19 lockdowns in China, which have impeded manufacturing of products from iPhones to cars.
But data so far have not shown significant signs of easing, and instead reports this week contained a worrisome rebound in inflation last month, with consumer prices surging 9.1 percent.
Increased costs for gas, food and housing has squeezed American families and heaped pressure on President Joe Biden, whose approval ratings have taken a battering from the relentless rise in prices.
Waller previously expressed support for another 75 basis point hike at the policy meeting later this month, but said Thursday he will be watching key reports on retail sales and housing coming in before then.
“If that data come in materially stronger than expected it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down,” Waller said in a speech to an economic conference.
While US central bankers universally favor attacking inflation, he is the first to hint at the giant step, although he said he still expects a repeat of last month’s decision.
The Fed’s moves so far have marked “the fastest pace of tightening in close to 30 years,” Waller said, but the large move in June “was not an over-reaction” given the repeated strong inflation readings since the beginning of the year.
“With inflation so high, there is a virtue in front-loading tightening,” he said. “Getting there sooner will bolster the public’s confidence that we can get inflation down” so that high prices do not become entrenched in the economy.
A full point rate hike certainly would be the biggest since 1990, and likely the most aggressive since a decade earlier when then-Fed chief Paul Volcker strangled the economy to clamp down on runaway inflation.
After what Waller called the “major league disappointment” in the inflation data, the government is due to release June retail sales on Friday, followed by new home sales on July 26 — the first day of the Fed’s two-day policy meeting — which will be key to showing how consumers are reacting to rising rates.
– ‘I just don’t see it’ –
Waller said the Fed erred last year in “betting the farm” on the expectation that price spikes would be transitory, thinking that supply chain snarls caused by the pandemic would recede quickly.
Policymakers should have acted sooner to begin removing stimulus, by slowing the massive bond purchases conducted during the Covid-19 downturn to support the financial system, he said.
He downplayed the recent upsurge in recession fears, saying a downturn is unlikely given the very tight labor markets.
“I believe it can be avoided,” he said, noting that the economy can cool and reduce the surplus of job vacancies without a big uptick in unemployment, which he said is close to the lowest in seven decades.
“I just don’t see it,” he said of the recession chances, noting that GDP data, which was negative in the first quarter and trending lower in the second is likely to be revised upwards.
“The labor market would have to really deteriorate” for there to be a recession, he said, but policymakers will have to cool demand to ease wage and price pressures.
“That’s just what we have to do, I’m sorry. It’s the job (the Fed) is given by Congress.”
Nigeria’s Twitter ban unlawful: W.African court
A seven-month ban on Twitter use in Nigeria was unlawful, according to a court ruling by West Africa’s regional bloc ECOWAS seen by AFP on Thursday.
The Abuja government suspended Twitter in June last year after the social media giant deleted a tweet by President Muhammadu Buhari. It lifted the ban in January.
The Economic Community of West African States (ECOWAS) court issued its ruling following a suit brought by a Nigerian NGO called the Socio-Economic Rights and Accountability Project (SERAP) and rights campaigners.
In a summing-up statement sent to AFP the court said the ban, which drew international approbrium, was unlawful, infringed freedom of expression and access to media, and ran counter to provisions both of the African Charter and the International Covenant on Civil and Political Rights.
In declaring the ban unlawful the court also ordered the Nigerian authorities never to repeat it.
Abuja lifted the suspension after talks with Twitter representatives but laid down conditions, including Twitter registering its operations in Nigeria, Africa’s largest economy.
With three-quarters of Nigeria’s population of 200 million aged under 24 the country is hyper-connected to social media.
The ban shocked many in Nigeria, given Twitter’s major role in political discourse, as evidenced by the #BringBackOurGirls hashtag deployed after Boko Haram extremists kidnapped nearly 300 schoolgirls in 2014.
Young activists also turned to Twitter to organise the #EndSARS protests against police brutality that eventually grew into the largest demonstrations in Nigeria’s modern history before they were repressed.
Around 40 million Nigerians, or around 20 percent of the population, have a Twitter account.
Abuja initially announced an unlimited ban, accusing the platform of allowing activities it said threatened the country’s existence citing posts by separatist agitators from the country’s southeast, where a civil war five decades ago killed one million people.
Nigeria’s National Information Technology Development Agency (NITDA) director general Kashifu Inuwa Abdullahi at the time said there were “unscrupulous elements” using Twitter “for subversive purposes and criminal activities, propagating fake news, and polarising Nigerians.”
The ban came two days after Twitter took down a tweet from President Buhari warning he would take action and treat those users “in the language they understand.”
New chief at Libya’s key oil firm, US warns against confrontation
Libya’s government replaced the head of the key National Oil Corporation on Thursday in a dramatic move that prompted the United States to warn against any “armed confrontation” over the sector.
The North African country’s vast oil reserves have often been at the heart of political disputes, but the NOC had largely stayed neutral despite years of division since the 2011 toppling of dictator Moamer Kadhafi in a NATO-backed rebellion.
However, in a decree made public on Wednesday, the unity government of Abdulhamid Dbeibah appointed former central banker Farhat Bengdara to replace NOC head and veteran technocrat Mustafa Sanalla.
On Thursday morning, Bengdara took up office at NOC headquarters in Tripoli, where he gave a news conference.
“It’s vitally important under the current conditions that Libya regains its oil and gas export capacity as quickly as possible,” he told journalists.
“The oil sector has fallen prey to political struggles, but we will work to prevent political interference in the sector.”
– ‘Vital’ to stability –
Dbeibah’s move against Sanalla follows months of rising tensions in Libya after the country’s eastern-based parliament appointed a rival government, led by former interior minister Fathi Bashagha and seen as backed by military strongman Khalifa Haftar.
Dbeibah has refused to cede power before elections, and Bashagha has so far failed to take office in Tripoli, raising fears of renewed conflict just two years after a landmark truce ending a ruinous attempt by Haftar to seize the capital by force.
The US embassy said Thursday it was following developments “with deep concern” and stressed that the NOC was vital to Libya’s “stability and prosperity”.
Since April, pro-Haftar groups have blockaded key eastern oil facilities to put pressure on Dbeibah.
As a result, Libya’s crude and condensate exports have fallen from around one million barrels per day in March to just over 400,000 so far in July, according to data intelligence firm Kpler.
The blockade has also contributed to crippling power shortages that sparked angry protests earlier this month.
The blockade also comes amid a supply crunch on global oil markets, rattled by the war in Ukraine, in turn prompting consumer nations to pressure other producers to ramp up output.
US President Joe Biden is expected to press Saudi Arabia on the subject when he visits the kingdom this weekend.
– Blockade to end? –
Libya meanwhile sits on Africa’s biggest proven crude reserves, with easy access to European markets.
US Ambassador Richard Norland, who has been working on a mechanism to manage the highly disputed revenues from Libya’s crude sales, said Sanalla’s replacement “may be contested in court but must not become the subject of armed confrontation”.
However, the appointment of Bengdara, a Kadhafi-era central banker reportedly close to Haftar, has triggered speculation that Dbeibah made a deal with the military strongman to allow him to keep power in Tripoli.
Emadeddin Badi, a senior fellow at the Atlantic Council, said Bengdara’s appointment was “the product of a momentary convergence between Dbeibah and Haftar, but it could be the basis for a broader deal”.
“Dbeibah gets several things from it,” Badi told AFP.
“He regains access to state funds, it stymies the US financial mechanism or the momentum to implement it, and Haftar will presumably lift the (oil) blockade and limit, if not completely halt, his support for Bashagha.”
Aydin Calik, an energy analyst at the Middle East Economic Survey (MEES), said he expected the oil blockade would be lifted “very shortly”.
But he warned that the new board was contested, including by Sanalla, who has long mediated disputes to keep Libya’s crude flowing and positioned himself as an interlocutor with foreign powers and oil firms.
Calik told AFP that “uncertainty over who is in charge at NOC raises questions: Who can legitimately export oil? Will international oil companies recognise the new NOC board? What might this mean for their contracts?.”
In a defiant video message on Wednesday evening, Sanalla told Dbeibah that “this institution belongs to the Libyan people, not to you or the Dbeibah family” adding that “the mandate of your government has expired”.
Bengdara insisted Thursday that he had been picked for the job because he was “non-partisan” and “can travel anywhere in Libya”.
JPMorgan Chase reports lower profits, gives cautious economic outlook
JPMorgan Chase reported a drop in second-quarter profits on Thursday as it warned of a weakening global economic outlook that prompted it to set aside additional funds to cover potential bad loans.
Executives sketched out a complex economic picture, with US households still relatively well off in terms of savings, a strong job market and robust consumer spending.
But headwinds — including high inflation, geopolitical uncertainty and fast-changing Federal Reserve policy to sharply curtail liquidity — “are very likely to have negative consequences on the global economy sometime down the road,” said Chief Executive Jamie Dimon in an earnings press release.
While consumers are “in very good shape,” there are “a serious set of issues” that threaten the outlook, Dimon told reporters on a conference call.
These include the worry that Russia will cut off Germany’s natural gas supply and the possibility that the Federal Reserve’s aggressive plan may not be sufficient to rein in inflation.
“The markets will be volatile,” Dimon predicted. “You can’t have all these kind of things going on and not have volatile markets.”
The big US bank’s earnings came in at $8.6 billion for the second quarter, down 28 percent from the year-ago period in results that missed analyst expectations.
Revenues were $30.7 billion, up one percent.
The bank said it added $428 million in credit reserves due to a “modest deterioration in the economic outlook.” In the year-ago period, JPMorgan’s profits were boosted by a $3 billion release in reserves.
The bank experienced $657 million in charge-offs for bad loans, up only modestly from the level in the previous quarter.
JPMorgan enjoyed a boost from higher net interest income following Fed interest rate increases. But the bank also incurred higher expenses on salaries, technology and marketing.
In corporate and investment banking, JPMorgan posted higher revenues in its trading businesses, but lower investment banking fees.
JPMorgan temporarily suspended share buybacks to meet new federal stress test requirements for managing risk assets, Dimon said.
– Consumers still spending –
The results came as the Labor Department reported another large spike in wholesale prices, one day after US consumer prices jumped the most in more than four decades.
Rising prices are the heart of investor fears about the consumer-driven US economy.
But JPMorgan Chief Financial Officer Jeremy Barnum said “there’s essentially no evidence” at this point of a drop-off in consumption.
The bank’s credit card data confirms that consumers are spending more on food and gasoline, but that they are still also spending on travel and dining.
“That indicates to us that consumers still don’t feel so pinched by inflation that they’re cutting back on discretionary spending, and that’s a relatively positive sign,” Barnum said.
Persistently high inflation has also raised fears that the Fed will adopt an even tougher line on monetary policy after the central bank announced a 0.75-percentage-point hike, its biggest since 1994.
The latest inflation readings have prompted talk of a potential one percent increase at the Fed meeting later this month — one that Federal Reserve Governor Christopher Waller said Thursday he would support.
Dimon said the 20 percent drop in the stock market in 2022 and the anemic state of initial public offerings and other corners of the financial system are evidence of the hit from the Fed shift.
But the impacts could worsen if the US central bank is unable to slow the economy with a “soft landing,” Dimon said.
Shares fell 4.6 percent to $106.78 in morning trading.
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