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

Jerome Powell rounds off his prepared testimony to Congress by warning of the risks of relaxing monetary policy too quickly.

He says that bringing down inflation is essential to achieving the Fed’s two goals, of price stability and maximum employment:

Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.

The historical record cautions strongly against prematurely loosening policy. We will stay the course until the job is done.

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 points out that recent latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.

Powell 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.