Jerome Powell warns Fed could switch back to bigger interest rate rises, knocking pound – business live

America’s top central banker is warning Congress that more needs to be done to tame US inflation, sending the dollar rallying against the pound.

Jerome Powell, chair of the Federal Reserve, is testifying to the Senate Committee on Banking, Housing, and Urban Affairs.

And he begins by warning that the Fed has “more work to do” – a hint that interest rates will continue to rise.

Powell says:

We have covered a lot of ground, and the full effects of our tightening so far are yet to be felt. Even so, we have more work to do. Our policy actions are guided by our dual mandate to promote maximum employment and stable prices.

Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of labor market conditions that benefit all.

Powell explains to the committee that inflation has moderated somewhat since the middle of last year but [at 6.4% in January] remains well above the Fed’s longer-run objective of 2%.

On the economic picture, he says the US economy slowed significantly last year, and points to signs that consumer spending and production are subdued.

But with inflation still three times the Fed’s target, Powell warns that the Fed continues to anticipate that ongoing interest rate increases will be appropriate, to return inflation to 2 percent over time.

For the last two meetings, the Fed has slowed the pace of its interest rate increases to 25 basis points, or a quarter of one percent.

Today, though, Powell wans that larger hikes could be introduced if necessary.

He says:

If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.

This has sent the dollar rising, knocking the pound down by over one cent today to $1.189.

Demonstrators have marched across France today in a new round of protests and strikes against the government’s plan to raise the retirement age to 64.

Unions have been hoping to make their biggest show of force against the proposed pensions reform, disrupting fuel deliveries and public transport and bringing the country to a standstill.

The proposed changes would raise the minimum retirement age to 64 from 62 and increase the number of years people have to make contributions for a full pension.

Associated Press reports:

Garbage collectors, utility workers, train drivers and others have walked off the job on Tuesday across France to show their anger at the reform.

More than 250 protests were expected in Paris and around the country against President Emmanuel Macron’s showcase legislation. The bill is under debate in the French Senate this week.

Tens of thousands of demonstrators took to the streets in Paris, Marseille, Nice and other cities, including Nantes and Lyon where some minor clashes with police broke out.

Laurent Berger, the secretary-general of the CFDT union, said that based on initial figures, the numbers of demonstrators nationwide are expected to be the biggest since the beginning of the movement in January.

The board of the International Monetary Funs is close to approving a $2.9bn bailout for Sri Lanka.

The rescue package could be agreed on 20 March, 10 months after Sri Lanka defaulted on its debts for the first time.

Reuters has the details:

The International Monetary Fund on Tuesday said Sri Lanka has secured financing assurances from all major bilateral creditors, paving the way for the IMF board to consider approval of a long-awaited $2.9 billion four-year bailout agreed last year.

The IMF said its board will meet on March 20 to review a preliminary staff-level agreement first signed in September, offering a lifeline to the South Asian country which faces its worst financial crisis since independence from Britain in 1948.

Approval is expected since the board generally will not add items to its agenda unless its members are ready to act.

Sri Lanka has now received financing assurances from all major bilateral creditors,” Krishna Srinivasan, director of the IMF’s Asia and Pacific Department (APD) said in a statement.

“This paves the way for consideration by the IMF’s Board on March 20 the approval of the Staff Level Agreement reached on September 1, 2022 for financing under an Extended Fund Facility,” Srinivasan added.

The UN High Commissioner for Human Rights has demanded action against fossil fuel companies who engage in greenwashing to improve their reputation.

Volker Türk told the 52nd session of the Human Rights Council that “Fake climate solutions” must be called out. He say the next UN climate change conference, which begins at the end of November, must tackle the issue.

Türk says:

I deplore the attempts by the fossil fuel industry at global climate talks and elsewhere to greenwash their reputation and derail our goal of decarbonization.

This must be averted at the upcoming COP28 in Dubai, and we need inclusive, safe and meaningful participation of civil society.

A study last month found that accusations of greenwashing against major oil companies that claim to be in transition to clean energy are well-founded.

While mentions of “climate”, “low-carbon” and “transition” have risen sharply in annual reports in recent years, there has been fewer concrete actions towards moving away from fossil fuels, it found.

Türk also called for protection of those who raise concerns over environmental crimes, or policies that result in harm, saying:

Bashing climate protests; designing laws that unfairly restrict activities that call the public’s attention to climate harms; and allowing attacks on activists to go unpunished: these are tactics that harm all States and all human beings. And they need to be addressed, urgently.

The political and financial turmoil last autumn may have deterred some foreign companies from acquiring UK companies.

The total value of inward M&A dropped to £5.3bn in the final quarter of 2023, new data from the Office from National Statistics shows. That is almost £16bn lower than in July-September when inward M&A was worth £21.2bn.

A year ago, inward M&A into the UK totalled £16.3bn.

The number of inward M&A transactions was broadly unchanged between October (68) and November (64), before dropping to 38 transactions during December 2022.

The turmoil of the mini-budget at the end of September, followed by the change of prime minister and chancellor, won’t have made Britain look a particularly attractive investment opportunity:

Andrew Gillen, Head of Corporate M&A and Capital Markets at corporate law firm Travers Smith, says:

“The sharp drop off in value and volume of inbound M&A during Q4, alongside an increase in outbound M&A indicates that political turmoil and economic uncertainty in the UK during autumn 2022 had a profound impact on the attractiveness of the UK as an investment destination at that time.

However it is always dangerous to read too much into a single quarter’s statistics: we feel the improving economic indicators that have been seen in early ‘23, and relative political stability, boosted by closer co-operation with the EU following the Windsor Agreement, will start to reverse this impact and allow the UK market to benefit from any increase in M&A activity.”

Domestic M&A activity, in which UK companies acquire other UK companies, almost doubled to £3.6bn in the last quarter of 2022.

Elsewhere in the global economy, South Africa is on the brink of recession after the country’s power cut crisis hit growth in the last quarter of 2022.

South Africa’s economy contracted by 1.3% in the final three months of last year, more than expected, as the escalation in rolling power cuts caused most sectors to shrink, including mining and agriculture.

South Africa’s energy crisis has led to daily power cuts of between eight and 11 hours across the country.

Offices, hospitals, factories and tens of thousands of small businesses were forced to close, with outages also causing increased crime, traffic disruption and massive wastage as food supply chains collapse.

Catherine Mann also predicted that some of the older workers who took early retirement in the last couple of years may try to return to the jobs market, because they struggle to live as they’d like on their pensions.

She told Bloomberg TV that it is “a challenge” to retire at 55, and make sure your retirement savings match your longevity.

BoE policymaker Mann predicts that some of these early retirees will end up looking for work, saying:

I worry that a couple years down the line, we’re going to see people trying to come back into the labour force, and that’s going to be much more difficult.

There has been some indication that people are looking for part time positions, Mann says, adding:

It’s early on that and as I say, I worry that people are going to find that their pensions are not sufficient for their preferred lifestyle and are going to want to come back.

Chancellor Jeremy Hunt has urged early retirees to return to work, and attracted criticism for suggesting that over-50s should get off the golf course to help tackle the UK’s labour shortages.

Mann also expressed concern about the supply side of the UK economy, saying:

It really is striking how slow growth is in the UK — much slower than what we observed for the US or for the euro area. Brexit is a factor on the supply side and on pricing power.”

Phillip Inman: Bank must wake up to risks of greedflation

Phillip Inman

Catherine Mann says companies are in a strong position to raise prices and this might force the Bank of England to maintain high rates or even increase them further, my colleague Phillip Inman writes:

Mann appears to have been blindsided by how corporate monopolies hand consumer goods companies the power to exploit a crisis by uniformly jacking up prices. In the US this trend has been dubbed greedflation.

The ECB has discussed it. But seemingly not the Bank of England.

On the services side of things, Brexit has limited skilled labour. You might ask how can services firms increase prices if there is intense competition. Well, the savings or inheritances of better-off people allows them to pay higher prices for everything from new kitchens and plumber callouts to higher solicitors or accounting fees.

Other, less well off consumers are forced to follow suit.

Bunzl’s recent results illustrate the point. It has become one of the most successful FTSE 100 companies by smuggling huge cost increases into its delivery and logistics business, pushing up the prices of all kinds of goods and services that consumers pay. Incredibly, last year it preserved profits and increased margins.

This situation is most likely going to be a one-off, given inflation’s likely precipitous fall this year.

But it has preserved corporate margins for the last two years and left 90% of people worse off. And BoE rate hikes have helped impoverish people further by raising the cost of borrowing.

Mann has shown in speeches that she is very concerned about the labour shortages and their impact on rising wages and, in turn, prices.

But it is only now dawning on policymakers that big corporates have capitalised on the crisis to increase prices even more than they needed to, boosting profits and dividends for shareholders.

Mann’s answer is to raise interest rates further, even though this only punishes mortgage holders, most of them young and middle aged families, and not the rich, who now get higher rates for their savings.

Bank of England policymaker Catherine Mann has warned that UK firms are continuing to raise prices, driving up UK inflation.

Speaking to Bloomberg TV, Mann says she is concerned by the strong pricing power exhibited by firms, which many consumers have been willing to pay.

She explains that the price of gas and goods imported from abroad are “on the downturn”, and not rising as fast as they did last year.

But on the other hand, Mann is concerned by the extent to which firms have strong pricing powers, and the acceptance of those higher prices by many consumers.

Mann says:

Of course, not all but even in the face of the cost of living crisis there are still a lot of people out there who are willing to pay higher prices, and firms are willing to set their prices high.

This is a growing concern among central bankers. Last week, the European Central Bank signalled it was closely monitoring potential price gouging of consumers.

[The Bank of England’s mandate is to keep inflation at 2% in the medium term, but inflation has soared over that target since the summer of 2021. In January this year, consumer prices rose at an annual rate of 10.1%.]

Mann, a hawkish member of the Bank’s monetary policy committee, says she feels vindicated after calling for interest rates to be raised faster in 2022, arguing that a ‘front-loaded’ policy would have been more effective in dampening inflation expectations.

She argues that more monetary policy tightening needs to be done, so that inflation expectations fall.

The weak pound, she says, is a “very important ingredient” pushing up inflation, as it raises the cost of imports of goods, and energy. The UK, Mann points out, is a “small open economy” which imports a lot of products.

Premier Foods has lifted its forecast for profits this year, after its grocery business saw strong demand.

The maker of Mr Kipling cakes and OXO cubes said it now expected adjusted profit before tax to be around £135m for the year to April 1, 10% higher than the prior-year figure.

Premier Foods also saw improving demand for its sweet treats segment improves in the fourth quarter.

Shares have jumped 10% this morning.

In January, the company said it would raise prices and cut spending as a way to offset high input cost inflation.