Jerome Powell also adds that the Fed has “much ground to cover” before it actually achieves maximum employment, and feels ready to raise interest rates from current record lows.
The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test.
We have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2 percent and is on track to moderately exceed 2 percent for some time.
We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2 percent inflation on a sustainable basis.
Powell: tightening policy too early would be harmful
Jerome Powell also warns that tightening monetary policy too early, in response to temporary inflation pressures, would be a “particularly harmful” mistake.
In a signal that he is determined to avoid a hawkish premature tightening, the Fed chair says that workers would suffer from such an error,.
If a central bank tightens policy in response to factors that turn out to be temporary, the main policy effects are likely to arrive after the need has passed.
The ill-timed policy move unnecessarily slows hiring and other economic activity and pushes inflation lower than desired. Today, with substantial slack remaining in the labor market and the pandemic continuing, such a mistake could be particularly harmful. We know that extended periods of unemployment can mean lasting harm to workers and to the productive capacity of the economy.
Powell signals Fed could start tapering its stimulus this year
America’s top central banker, Jerome Powell, has just addressed the Jackson Hole economic symposium….and declared that the Federal Reserve could begin to slow its bond-buying stimulus programme later this year.
In an eagerly awaited speech, Powell says that the Fed has achieved the ‘substantial further progress’ it was aiming for on inflation, and is making “clear progress toward maximum employment” too, given strong jobs gains in recent months.
But, Powell hasn’t given a clear pledge on exactly when the Federal Reserve might start winding back the $120bn/month programme, or how quickly it will act. He’s not lit the tapering touch paper today.
Pointing to the spread of the Delta variant, Powell says:
We have said that we would continue our asset purchases at the current pace until we see substantial further progress toward our maximum employment and price stability goals, measured since last December, when we first articulated this guidance.
My view is that the “substantial further progress” test has been met for inflation. There has also been clear progress toward maximum employment.
At the FOMC’s recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year.
The intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant. We will be carefully assessing incoming data and the evolving risks. Even after our asset purchases end, our elevated holdings of longer-term securities will continue to support accommodative financial conditions.
Powell also expresses hope that America’s jobs market will continue to recover this autumn, despite the threat from the Delta variant of Covid-19.
With vaccinations rising, schools reopening, and enhanced unemployment benefits ending, some factors that may be holding back job seekers are likely fading. While the Delta variant presents a near-term risk, the prospects are good for continued progress toward maximum employment.
After faltering last winter, job gains have risen steadily over the course of this year and now average 832,000 over the past three months, of which almost 800,000 have been in services, the Fed chair says.
Powell started his speech by hailing those in the front line fighting the pandemic: the essential workers who kept the economy going, those who have cared for others in need.
He also points to those in medical research, business, and government who developed, produced and distributed vaccines that have allowed economies to reopen, adding:
We should also keep in our thoughts those who have lost their lives from Covid, as well as their loved ones.
Powell points out that the pandemic recession—the briefest yet deepest on record—displaced roughly 30 million workers in the space of two months.
The slump in Q2 2020 was twice as severe as the full decline during the Great Recession of 2007–09. But, the pace of the recovery has exceeded expectations too, with the economy surpassing its previous peak after only four quarters, less than half the time required following the Great Recession.
Employment gains have also come faster than expected, but are lagging the output recovery, he points out.
On inflation, Powell says that the spike in inflation is so far largely the product of a relatively narrow group of goods and services, driven by the pandemic and the reopening of the economy.
He cites energy prices, hotel rooms and airplane tickets, and used car prices (which seem to have stabilised after surging, and could soon pull inflation down).
Stocks have opened higher on Wall Street after dipping yesterday, with the Dow gaining 107 points or 0.3% to 35,320.
The tech-focused Nasdaq has also opened higher, gaining 0.4% or 64 points to 15,010 points.
Energy news: British Gas will freeze the direct debits of 2m households over the winter to help customers manage the highest cap on standard energy bills since the regulatory measure was introduced in 2019.
The UK’s largest energy supplier confirmed it would raise the price of its default dual fuel tariff in line with the industry price cap, which will climb by 12% to an average of £1,277 a year.
British Gas will delay increasing the direct debits paid by customers on the default tariff until February next year, before smoothing out the higher costs over the warmer months, when homes tend to use less energy.
The company said it wanted to give its direct debit customers “the option to create a bit of extra financial breathing space if they need it”.
The US multinational technology company Nvidia has said it will answer “any concerns” raised by the European Commission as regulators appeared set to launch an investigation into the firm’s proposed $54bn (£39bn) purchase of the British chip designer Arm.
The world’s leading maker of graphics and artificial intelligence chips is expected to notify the commission early in September of its plan to purchase Arm, when regulators would probably undertake a preliminary review.
A spokesperson for Nvidia said:
“This transaction will be beneficial to Arm, its licensees, competition, and the industry. We are working through the regulatory process and we look forward to engaging with the European Commission to address any concerns they may have.”
The Financial Times reports this morning that Brussels is set to launch a formal competition probe early next month, once Nvidia officially notifies the European Commission of its plan to buy Arm (which also face scrutiny in the UK).
US core PCE inflation sticks at 30-year high
Just in. The prices paid for Americans for goods and services continues to rise last month, according to a closely watched survey.
The PCE index rose by 4.2% year-on-year in July, up from 4.0% in June. Energy prices were one factor, jumping 23.6% year-on-year, while food prices increased 2.4 percent.
And core PCE, which strips out food and energy, rose by 3.6% per year. That’s a 30-year high, matching last month’s reading.
PCE is the Federal Reserve’s preferred measure of inflation, so this rise could increase pressure to rein in its stimulus programme.
However, officials may still feel that the factors pushing price up are mostly transient – such as ongoing supply-chain bottlenecks, shortages caused by the pandemic.
Prices rose 0.4% during the month while core PCE rose 0.3% month-on-month — both down from the pacey 0.5% price growth seen in June.
The Bureau of Economic Analysis has also reported that US personal incomes rose by 1.1% last month, helped by rising wages and child tax credit payments under the White House’s stimulus plan.
But personal spending was more subdued, rising 0.3% in the month.
In other tech news…shares in Just Eat Takeaway have tumbled 5.5% in London today after New York’s City Council approved legislation to permanently cap commissions delivery apps can charge restaurants.
The move is a blow to Just Eat’s Grubhub, one of New York’s biggest food delivery apps, as well as rivals like DoorDash and Uber Eats.
Under the plan, food delivery services may only charge up to 15% of food orders, and 5% for marketing — restaurants had complained that some had commonly charged up to 30%.
Councilman Francisco Moya, a Queens Democrat, said the move would help independent eateries.
By limiting, without expiration, the fees charged to restaurants by third-party food delivery services, we are ensuring that mom-and-pop shops have a real opportunity to recover and thrive.
New York had previously had a temporary cap, to help restaurants through the pandemic. Analysts suspect other cities with temporary curbs, such as Los Angeles, Seattle, and Chicago, could make them permanent too.
Chinese authorities say overtime ‘996’ policy is illegal
In yet another blow to China’s tech sector, Beijing’s top court said today the country’s notorious “996” overtime policy is illegal.
Under 996, employees work 9am to 9pm, six days a week — part of an engrained culture of overwork that has been particularly prevalent at fast-growing technology companies.
China’s Supreme People’s Court and the Ministry of Human Resources and Social Security have today jointly published guidelines and examples on what constituted as overtime work, warning companies not to abuse staff.
These new “model” cases that will guide courts on how to treat workers’ rights in labour disputes.
Back in 2019 Jack Ma, founder of e-commerce giant Alibaba, was criticized for endorsing the controversial culture of 12-hour workdays, saying those who put in longer hours would get the “rewards of hard work.”
Younger workers have been pushing back against 996, with an online movement encouraging people to take breaks, relax – and embrace a less intense philosophy known as “touching fish”.
And recently, tech firms have been moving away from it – with TikTok owner ByteDance pledging to end its weekend overtime policy this month.
The strengthening of labour rights followed years of dissent among tech workers over the so-called 996 system, which had been held up for many years as a badge of pride and a source of competitive advantage. Jack Ma, the founder of Alibaba, once told his employees that they needed to be prepared to work 12 hour days at his company, and described 996 as “a blessing”.
But an anti-996 campaign has taken hold at China’s big tech companies after complaints of gruelling conditions and deaths blamed on overwork. In response companies including ByteDance, owner of short video platform TikTok, and the internet group Tencent have recently cut back working hours.
“This clarification of regulations is very specifically targeted at tech giants and even medium-sized tech companies in China,” added Suji Yan, founder of Mask Network, a Singapore-based cryptographic and encryption start-up.
“If tech companies still practice further violations of working hours, regulators will highly likely take action against them.”
Back in Britain, pig producers are warning that healthy animals may end up being culled if the government does not take urgent action to deal with shortages of workers at abattoirs and meat-processing plants.
As many as 70,000 pigs that should have already been taken to slaughter are stranded on UK farms, according to the industry trade body the National Pig Association (NPA).
The excess numbers of pigs on UK farms is growing by 15,000 each week, the NPA said, with about a quarter fewer pigs leaving for slaughter than would be expected in normal times. More here.
Here’s Raffi Boyadjian, lead investment analyst at XM, on the markets and the state of the economy today:
US stock futures were rebounding on Friday, pointing to gains of 0.3% at the open. Shares in Europe were mixed but in Asia, only Chinese indices managed to close higher as virus woes continue to sap sentiment.
It’s not just in low vaccinated Asian countries, though, that the Delta variant is spreading uncontrollably. The number of people hospitalized in the United States is back above 100,000 and in Britain, there are fears that cases will soar once schools reopen.
As the global recovery comes under threat again, optimism is becoming increasingly reliant on hopes that monetary policy will remain accommodative for the foreseeable future even though many central banks have been moving in the opposite direction lately.
South Korea’s central bank hiked rates for the first time during the pandemic on Thursday. But in China, policymakers have been trying to calm markets by ramping up cash injections into the banking system this week whilst signalling that the reserve requirement ratio for banks could be cut again very soon.
China lays out plans for tighter control of algorithms
In another significant move to control its technology sector, China is seeking to tighten oversight of the algorithms they use to drive their businesses.
The Cyberspace Administration of China has issued a swathe of draft proposals to more rightly regulate how companies use algorithms.
The proposed guidelines say they must comply with laws and regulations, respect social ethics and ethics, abide by business ethics and professional ethics, and follow principles of (among others) fairness, openness and transparency.
The wide-ranging regulations would bar companies from using algorithms to hit consumers with higher prices based on their known preferences and trading habits, or influence online public opinion, or excessively manipulate search results in a way that harms competition.
Practices which violate public order, or encourage addiction or “high consumption” would also be curbed.
The proposals also say users must be given simple options to turn off algorithm recommendation services — which are used to provide personalised adverts and shopping recommendations — and to select, modify or deleting user tags used for algorithm recommendation services.
The proposals would also force firms to ensure that they protect children, and don’t serve them content that could encourage unsafe behaviors, violate social ethics or induce bad habits among minors… such as becoming addicted to the Internet.
And companies who use algorithms to schedule their workers (such as ride-hire companies) must ensure they protect pay, working hours and other labor rights.
Kendra Schaefer, head of tech policy research at Beijing-based consultancy Trivium China, says the proposals mean algorithms would be “tightly controlled”.
Here’s her full take:
It outlined how their vast fortunes has clashed with Beijing’s political philosophy, posing a threat to the communist party, prompting Xi Jinping to rein them in.
China’s tech bosses are among its wealthiest citizens, and they are very much in Xi’s sights. The boss of social and gaming giant Tencent, Pony Ma, is estimated by Forbes to be worth $43bn (£31bn). His peer Jack Ma, founder of Alibaba, is not far behind at $41bn.
With money have come power at home and influence abroad, both of which pose a threat to the Communist party, analysts say. China’s technologies increasingly shape the western world, from Alibaba in global trade, linking western buyers with exporters of goods made in China, to TikTok in popular culture, to online gaming, where Tencent has an interest in some of the most successful European developers.
“The recent regulatory crackdowns also send a chilling message to enterprising Chinese business people, whose contributions to the economy are far bigger than many state-owned firms,” said Dexter Roberts, senior fellow at Atlantic Council’s Scowcroft Center for Strategy and Security.
“Chinese economists have long wondered whether the tech sector would be Xi’s next move in addressing the issue of wealth distribution,” said Roberts, who is also the author of The Myth of Chinese Capitalism. “In this sense, it’s unsurprising that this is now happening. After all, these tech firms are the symbol of excessive wealth in China.”
Xinhua: China issues guidelines on promoting employment in next five years
China’s State Council, the cabinet, has issued guidelines on promoting employment in the 2021-2025 period, including targets for boosting the extent of employment and improving workers’ skillsets, according to the official Xinhua News Agency.
China will aim to solve structural issues with the workforce and effectively fend off large-scale unemployment risks, Xinhua cited the State Council as saying (via Reuters).
This looks to be another sign that Beijing’s trying to limit the slowdown in its economy, with factory profit growth having slowed this morning.