We need a recession to bring down inflation', says former Bank of England chief

The recession is around the corner?

On Thursday, 27th July, the Wall Street Journal reported that low-interest rates in the US are crucial in supporting consumer spending. Consumers have maintained their spending habits, with many Americans securing low rates on mortgages, car loans, and other debts before the Federal Reserve began raising rates. This is because most household debt consists of fixed-rate loans, meaning that interest payments do not increase as the Federal Reserve raises its federal funds rate. Mark Zandi, the chief economist at Moody's Analytics, has emphasized that this is a significant factor enabling consumers to continue spending despite the rate hikes. Simultaneously, in Frankfurt, Germany, Christine Lagarde, the President of the European Central Bank (ECB), made an important announcement regarding the economic situation in the Eurozone. Lagarde acknowledged the complexity of the current landscape and revealed that the ECB's Governing Council has decided to raise the three primary interest rates by 25 basis points later this year. While Lagarde expressed confidence in the decision, she also raised concerns about ongoing challenges, such as the Russian invasion of Ukraine and its potential impact on the energy industry. These factors will undoubtedly impact the Eurozone's economic stability and require careful monitoring in the coming months. In addition to these developments, today, the former chief of the Bank of England, Alex Brazier, has put forth an intriguing perspective. Brazier believes that a recession is necessary to decrease inflation in the UK. Despite the economy performing better than expected and experiencing accelerated growth rates, this performance is only considered sustainable in the short term.

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We need a recession to bring down inflation', says former Bank of England chief - latest updates

The Bank of England will need to force Britain into recession to bring inflation back down to its 2pc target, a former member of its financial policy committee has warned.

The telegrpah, Updated 8 minutes ago

BP’s £2bn profits cause anger amid climate crisis

Oil and gas company to return another $1.5bn to investors through a share buyback

The Guardian by Jillian Ambrose and Rob Davies, August 1, 2023

Germany's bailed-out Uniper plans billions in green investments

In recent years, Uniper faced a significant challenge when it had to replace the missing Russian gas volumes, especially during times of high demand. This situation often led to a surge in spot market prices, exposing the company to substantial financial risk.

Reuters by Vera Eckert and Rachel More, editing by Germán & Co, August 1, 2023

Why More House Republicans Are Flirting With Impeaching Biden

*There has been a surge in support for Trump among the MAGA base due to the Republicans investigating Biden's family and presidency. With each new indictment, Trump's popularity has increased, making him one of the leading candidates for the Republican presidential nomination in 2024.

*By Germán & Co

TIME by ERIC CORTELLESSA, JULY 31, 2023

Why Did Economic Forecasters Get Their Recession Call Wrong?

Not only has the economy outperformed predictions but it’s growing at a faster rate than experts think is sustainable in the long run.

The New Yorkers by John Cassidy, July 28, 2023

We need a recession to bring down inflation', says former Bank of England chief - latest updates

The Bank of England will need to force Britain into recession to bring inflation back down to its 2pc target, a former member of its financial policy committee has warned.

The telegrpah, Updated 8 minutes ago

*Alex Brazier, now deputy head of the BlackRock Investment Institute, acknowledged that the Bank has already hit the brakes on the economy “pretty hard” having raised interest rates for 13 consecutive meetings.

However, if inflation is to fall, interest rates will need to rise further from their present level of 5pc, he said, which will bring in “weak growth and higher unemployment.”

Official figures showed inflation in the UK fell to 7.9pc in June, which was down from 8.7pc in May but still nearly four times the Bank of England’s target, which it is not forecast to meet until early 2025.

Mr Brazier told BBC Radio 4’s Today programme: “Inflation has now become entrenched and so, to be honest, getting inflation to 2pc - the Banks target - probably does entail a further growth slowdown or recession and higher unemployment.

“The trick for the bank is to do that in as moderate a way as possible.”

Mr Brazier, who left the Bank of England in 2021, predicted the peak for interest rates will be “probably below 6pc”.

*Alex Brazier is an expert in policy, strategic planning, management, and governance. He has played a crucial role in implementing post-crisis reform and providing guidance in micro-prudential supervision. He's proficient in economic analysis and has supported the Governor on monetary policy matters.

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BP’s £2bn profits cause anger amid climate crisis

Oil and gas company to return another $1.5bn to investors through a share buyback

The Guardian by Jillian Ambrose and Rob Davies, August 1, 2023

BP has angered climate campaigners by reporting profits of $2.6bn (£2bn) for the second quarter of the year as the climate crisis triggers extreme heatwaves.

The company blamed falling oil and gas markets for the drop in profits from $8.5bn in the same period last year when Russia’s invasion of Ukraine ignited a rise in global energy markets.

BP willincrease its shareholder dividends by 10% to $2.3bn, despite the fall in profits. It will also return a further $1.5bn to investors through a share buyback over the next three months.

The BP chief executive, Bernard Looney, said the payouts reflected the company’s confidence in its strategy and the outlook for its future cashflows.

BP’s profits have fuelled growing anger at fossil fuel companies among green groups, which have accused the oil companies of “obscene” profits at the expense of hard-pressed families and the environment.

Tommy Vickerstaff, a lead UK campaigner for 350.org, said: “We’re almost desensitised to BP’s profits at this point because the government has continuously failed to take action to redistribute them. But there is nothing normal or routine about BP’s profit margins or about the destructive heatwaves we’re seeing across Europe that BP is directly responsible for causing.”

Global Witness said BP’s multibillion-dollar shareholder payouts stand in contrast to the millions of households pushed into fuel poverty by the rise in global energy prices.

Jonathan Noronha-Gant, a senior campaigner at Global Witness, said: “This is what a broken energy system looks like – oil giants get richer because the rest of us get poorer. For BP the energy crisis has been a giant cash grab; for parents across the country it has been an impossible choice between feeding their children and paying their bills.”

In a recent report, the IPPR, a left-leaning thinktank, argued that share buybacks are a direct cash transfer away from hard-pressed households to already wealthy shareholders at the expense of the environment.

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Germany's bailed-out Uniper plans billions in green investments

In recent years, Uniper faced a significant challenge when it had to replace the missing Russian gas volumes, especially during times of high demand. This situation often led to a surge in spot market prices, exposing the company to substantial financial risk.

Reuters by Vera Eckert and Rachel More, editing by Germán & Co, August 1, 2023

DUESSELDORF, Aug 1 (Reuters) - German utility Uniper (UN01.DE) mapped out plans to diversify its portfolio on Tuesday with billions of euros in green investments, hailing record earnings in the first half of 2023 as a turnaround following its bailout just a year earlier.

"Uniper is back on track," said new CEO Michael Lewis, who was installed to steer the company, once Germany's biggest importer of Russian gas, out of the crisis triggered by an end in deliveries from Russia's Gazprom GAZP.MM.

He presented plans to invest 8 billion euros ($8.79 billion) through 2030 on a green transformation, triple the company's average annual investments of the past three years.

Uniper's turnaround was largely driven by the company hedging its gas supply commitments for the years 2023 and 2024 at lower prices, after being forced to replace missing Russian volumes at surging prices on spot markets last year.

In May, the company, in which the German government owns a 99% stake, flagged a profit of more than 2 billion euros expected from hedging its gas supply commitments.

Expecting no further financial losses from procuring replacement gas volumes, Uniper said on Tuesday no further capital increases from the German state would be necessary.

Its credit line from the KfW state lender has been reduced ahead of schedule to 11.5 billion euros from 16.5 billion euros, the company said.

Uniper on Tuesday reiterated its 2023 outlook, which foresees operating earnings and net profit in a mid single-digit billion euro range, but warned that this result was largely based on exceptional circumstances.

PATH TO INDEPENDENCE

Asked by investors for a timeline on the German government's exit, CFO Jutta Doenges called for patience and pointed to the terms of the bailout, which requires Berlin to reduce its stake to no more than 25% plus one share by the end of 2028.

The German government has welcomed Uniper's strong half-year performance, which saw adjusted earnings before interest and tax (EBIT) of 3.7 billion euros, after a 757-million-euro loss a year earlier.

The government plans to present an exit plan by the end of this year.

"We're confident that we're doing our part of the necessary steps to bring Uniper back to the market," Lewis said, painting the green investment plan as a chance to diversify the utility's portfolio to shield it against future volatility.

The new strategy includes targeted growth in solar and wind farms, with 80% of Uniper's installed generating capacity to be zero-carbon by 2030, the company said, adding it would end coal-fired power generation by 2029 at the latest.

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…“More than 32 years ago, back in January 1990, Seaboard began operations as the first independent power producer (IPP) in the Dominican Republic. They became pioneers in the electricity market by way of the commercial operations of Estrella del Norte, a 40MW floating power generation plant and the first of three built for Seaboard by Wärtsilä.

Why More House Republicans Are Flirting With Impeaching Biden

*There has been a surge in support for Trump among the MAGA base due to the Republicans investigating Biden's family and presidency. With each new indictment, Trump's popularity has increased, making him one of the leading candidates for the Republican presidential nomination in 2024.

*By Germán & Co

TIME by ERIC CORTELLESSA, JULY 31, 2023

Speaker Kevin McCarthy has long resisted calls from the hard right to impeach President Joe Biden, citing the lack of evidence of any crimes committed by Biden during Congressional investigations. McCarthy initially expressed concerns that using impeachment for political purposes would not be beneficial. However, McCarthy recently changed his stance under pressure from the MAGA flank, new revelations about Hunter Biden, and the influence of Donald Trump.

The California Republican didn’t quite call to impeach Biden, but he escalated that prospect by floating an impeachment inquiry into the President over unproven claims of financial misconduct. “What an impeachment inquiry does, when you vote on the floor, is it gives you the apex of power of Congress,” McCarthy told reporters on Thursday.

The proceedings, which would be the first step before bringing articles of impeachment, could be as fast or as slow as the House GOP would like—meaning it could stretch well into the 2024 campaign season. While the effort is destined to go nowhere in the Democratic-controlled Senate, it’s a sign that the coming election will be fought beyond the conventional venues of the campaign trail. It will play out in courthouses throughout the country, where former President Donald Trump will defend himself against multiple criminal prosecutions, and the halls of Congress, where Republicans hope to put Biden on trial simultaneously. 

That, say Democrats, and some Republicans in private, is the point. Trump and his supporters, they insist, want an answer to the courtroom dramas he will face with the election in full swing, and an impeachment proceeding on the House floor fits the bill.  “It's all about protecting Trump and stirring up the waters and blurring the differences between Trump and Biden,” says Jim Manley, a former aide to the late Democratic Senators Harry Reid and Ted Kennedy. 

Republicans argue that McCarthy’s evolution on impeachment was triggered by a set of recent discoveries: two IRS whistleblowers who allege the Department of Justice gave Hunter Biden a sweetheart deal, which subsequently collapsed when it came before a federal judge; news that a Democratic donor who bought an expensive painting from the younger Biden also received a cushy posting from the President; and closed-door testimony expected on Monday from Hunter Biden’s long-time friend Devon Archer, who GOP lawmakers say will corroborate claims that Biden, as vice president, participated in his son’s business dealings. “The evidence and stuff that's come out is what is causing him to change his tune,” a senior Republican House staffer familiar with the matter tells TIME.

Since Republicans took over the House last January, they have conducted myriad probes into Biden’s family and presidency. The confluence of investigations and allegations have created a groundswell among the MAGA base that Biden should face retribution. That hunger has only grown as Trump—who wants to see Biden impeached—has soared in the polls following each indictment, making him the clear frontrunner for the 2024 GOP presidential nomination.

Now, some of his fiercest allies in Congress are pushing for Biden’s comeuppance. “It must happen,” Republican Rep. Cory Mills of Florida tells TIME. “He’s the most corrupt President in our nation’s history. It’s absolutely warranted.” Rep. Elise Stefanik, the House GOP Conference Chair, told Fox Business on Thursday that she would “absolutely” support an impeachment, saying she’s “in conversations with Speaker McCarthy and all of our members” about it. 

The push comes against a backdrop of Trump’s mounting legal woes. He’s facing criminal charges in New York for allegedly falsifying business records to conceal hush-money payments to a porn star. At the same time, he’s under federal indictment for allegedly hoarding national-security secrets and blocking the government’s efforts to reclaim them. Special Counsel Jack Smith added new counts against Trump in the Mar-a-Lago documents case on Thursday, alleging he deleted video evidence to obstruct the investigation. More prosecutions also appear to be in the offing. One is from a separate special counsel investigation by Smith into Trump’s role leading up to the Jan. 6 attack on the U.S. Capitol. The other is from Fulton County DA Fani Willis, who’s probing Trump’s efforts to overturn the 2020 election in the state.

But one problem McCarthy faces on the Hill is that he doesn’t have buy-in from his entire conference. “I don't think it’s responsible to talk about impeachment, because we have these ongoing investigations that are gathering material,” Republican Rep. Ken Buck of Colorado tells TIME. “When they gather the material that indicates that there’s an impeachable offense then we should open an inquiry. But at this point in time, it’s premature.”

With Republicans having a slim 222-212 House majority, only a small number of defections could sink the effort. And Buck is not alone. Behind closed doors, some GOP Hill staffers and members worry that impeachment proceedings against Biden could boomerang against them in the next election.  

Buck thinks McCarthy’s flirtation with impeachment is due to more than Trump’s grip over the party and Hunter Biden’s misadventures. Last week, Congress left for its August recess without passing crucial appropriations measures to fund the Department of Agriculture and the Food and Drug Administration. When lawmakers return in September, they will need to pass 12 such bills to keep the government funded, or risk a government shutdown on October 1. “This has been done to distract from those appropriations bills and the lack of consensus on those appropriations bills,” he says.

But even if some Republican lawmakers are resistant to impeaching Biden, some Capitol Hill veterans suspect the wrath of Trump and his supporters could change their minds in the coming months. Says Manley: “The blowback from Trump and Trump supporters and the rest of the caucus will be brutal.”

A similar dynamic played out last month, when Republican Rep. Anna Paulina Luna of Florida forced a vote to censure Rep. Adam Schiff, the California Democrat who led Trump’s first impeachment and served on the Jan. 6 committee. The first attempt failed after 20 Republicans voted against it. But then, Luna and Trump mobilized a social media backlash. A week later, Luna forced another vote. This time, it was successful. Not a single Republican voted against the measure.

While Schiff became the 25th House member to face such a reprimand and will now be subject to a House Ethics investigation, the ordeal came with some upside for him. His Senate campaign raised $8.1 million afterwards.

It’s a reason why Democrats believe the GOP impeaching Biden could help the President’s reelection campaign. “Impeachment hearings would make for good television. They would make for spectacle,” a senior Democratic Hill staffer tells TIME. “But what we already know is that voters are tired of hyper partisanship.” Moreover, the official adds, Democrats would use the proceedings to try to emphasize a contrast between the parties: “Democrats are here to lower costs and build bridges. Republicans are here to perform political theater.”

Of course, Republicans have only a razor-thin House majority and remain blocked by Biden’s veto power. That leaves them with not much they can do beyond messaging. The question looming over the caucus is whether a Biden impeachment inquiry would amount to a political winner or an election-season misfire.

Democrats are betting it would be the latter. “This is playing into the political circus that helped them lose four years ago and underperform two years ago,” the Hill staffer says. “If you give them enough rope, they’ll hang themselves.”

Why Did Economic Forecasters Get Their Recession Call Wrong?

Not only has the economy outperformed predictions but it’s growing at a faster rate than experts think is sustainable in the long run.

The New Yorkers by John Cassidy, July 28, 2023

Earlier this week, the Conference Board said that its index of consumer confidence had reached the highest level in two years.Photograph by Angela Weiss / Getty

Last October, the Wall Street Journal published a survey of more than sixty economic forecasters from universities, businesses, and Wall Street. Citing the results of the survey, the Journal reported that the United States was “forecast to enter a recession in the coming 12 months as the Federal Reserve battles to bring down persistently high inflation, the economy contracts and employers cut jobs in response.” The story went on to say that the economists surveyed expected inflation-adjusted G.D.P. “to contract at a 0.2% annual rate in the first quarter of 2023 and shrink 0.1% in the second quarter.” The economists were also predicting that the unemployment rate, which was then 3.5 per cent, would rise to 4.3 per cent by June.

These forecasts turned out to be off—way off. On Thursday, the Commerce Department announced that G.D.P. rose at an annual rate of 2.4 per cent in the second quarter of this year, after growing at 2.0 per cent in the first quarter. Far from plunging into recession, the U.S. economy has grown at a faster rate than many experts think is sustainable in the long run. Employers have continued to create jobs at a healthy clip, and the unemployment rate has remained steady, climbing just one-tenth of a percentage point in the past nine months, to 3.6 per cent in June.

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In the forecasters’ defense, they never said that a recession was certain. But they did say it was the most likely outcome, assigning it a probability of sixty-three per cent. And private-sector forecasters weren’t the only ones who got fooled by the economy’s resilience in the face of sharply higher interest rates: until recently, the staff economists at the Federal Reserve were also predicting a recession for this year. At a press conference on Wednesday, after the central bank raised the federal funds rate again, to a range of 5.25 to 5.5 per cent, the Fed chair, Jerome Powell, said that his staff has now changed its forecast to moderate growth for the rest of 2023.

It almost goes without saying that making economic forecasts is a difficult, and often thankless, task. Modern economies are extremely complex organisms. The aggregate outcomes they generate reflect many factors, including some external ones that are innately unpredictable, such as the coronavirus pandemic and the war in Ukraine. Since last October, though, there haven’t been any colossal surprises. Global supply chains have continued to recover from the pandemic, the war in Ukraine has continued, and the Fed has followed through on its pledge to keep raising rates until inflation is brought under control. Why, then, has the economy outperformed the forecasters’ predictions?

The proximate answer is that consumer spending and capital investments by businesses have held up stronger than expected. In the three months from April to June, personal consumption expenditures, which make up more than two-thirds of G.D.P., rose at an annual rate of 1.6 per cent, and gross private domestic investment rose at a rate of 5.7 per cent. Together, these increases accounted for nearly all of the quarterly rise in G.D.P. (The rest was largely due to higher spending by state and local governments.) But merely reciting these figures raises a deeper question: How have households and businesses been able to shrug off higher prices and higher interest rates, at least so far?

One reason is that prices are now rising less rapidly than wages (another development many economists failed to predict), which means workers’ purchasing power is rising, albeit slowly. Combined with healthy job growth, the sharp fall in the inflation rate—from 9.1 per cent in June, 2022, to three per cent this past month—has made many consumers feel better about things. Earlier this week, the Conference Board said that its index of consumer confidence had reached the highest level in two years.

On Thursday, the Wall Street Journal highlighted another element that is supporting consumer spending: many Americans were able to lock in low interest rates on mortgages, car loans, and other debts before the Fed started raising rates. According to Moody’s Analytics, nearly ninety per cent of household debt is fixed-rate debt, which means the interest payments attached to it don’t increase as the Fed hikes the federal funds rate. “It’s one reason why consumers are hanging tough and the Fed’s rate hikes have taken less of a bite out of the economy,” Mark Zandi, the chief economist at Moody’s Analytics, told the Journal.

The final thing that many economists underestimated was the impact of the fiscal policies that the Biden Administration introduced during its first two years. The lingering effects of the 1.9-trillion-dollar American Rescue Plan Act of 2021 can still be seen in improved finances of households and local governments, which is supporting their spending. But the most striking example is the surge in business investment, particularly in manufacturing facilities, since the passage last year of the Inflation Reduction Act, which provided generous financial incentives for manufacturers of electric vehicles and other green technology, and the chips and Science Act, which provided similar incentives for manufacturers of semiconductors.

I’ve written about this surge before, and the new G.D.P. report confirms it. During the second quarter of this year, business investment in structures grew at an annual rate of 9.7 per cent, following an increase of 15.8 per cent in the first quarter. The entirety of this spending wasn’t carried out by manufacturers, but a good deal of it was. The White House Council of Economic Advisers pointed out that “about 0.4 percentage point of real Q2 GDP growth came from investment in private manufactured structures, the largest such contribution since 1981.” This is good news for the economy’s immediate prospects and for the longer-term energy transition, which is essential.

And the bad news? As a worrywart, I can always find things. The Fed could still tank the economy by keeping rates too high for too long. The renewed bubble in technology stocks, driven by optimism about A.I., could end in a stock-market crash. There could be another banking crisis, or something out of the blue, such as a conflict in the Middle East that creates another run-up in energy prices. I could also point to the sight of economic forecasters getting more optimistic, but that would be mean. For now, let’s just celebrate the fact that their predictions turned out to be wrong. ♦