But a ‘solid’ economy with still ‘strong’ job growth, Powell said
The US Federal Reserve held interest rates steady on Wednesday but stiffened a hawkish monetary policy stance that its officials increasingly believe can succeed in lowering inflation without wrecking the economy or leading to large job losses.
The Fed’s benchmark overnight interest rate may still be lifted one more time this year to a peak 5.50 per cent-5.75 per cent range, according to updated quarterly projections released by the U.S. central bank, and rates kept significantly tighter through 2024 than previously expected.
“People hate inflation. Hate it,” Fed Chair Jerome Powell said in a press conference after the end of a two-day policy meeting at which central bank officials held the benchmark overnight interest rate in the current 5.25 per cent -5.50 per cent range, but sketched a stricter policy path moving forward in an inflation fight they now see lasting into 2026.
But a “solid” economy with still “strong” job growth, Powell said, will allow the central bank to keep that additional pressure on financial conditions through 2025 with much less of a cost to the economy and labor market than in previous U.S. inflation battles.
China, which achieved spectacular growth since it opened up its markets in the late 1970s, is facing a serious crisis due to emerging faultlines in its real estate sector – which accounts for nearly 30 per cent of its GDP
IMF’s Deputy Managing Director Gita Gopinath believes that China has the capability to “turn the things around”.
All the high-frequency data coming from Beijing have, by now, established that the world’s second-largest economy is slowing down but one thing that economists and financial experts are still divided on is whether China can stage a comeback considering the growing challenges like a sharp rise in youth unemployment, mounting debts, and a slowdown in domestic consumption. China watchers say that Beijing has proven in the past that it has the ability to bounce back and it may do it again despite concerns that its current challenges are far deeper than what it overcame in past years. “Never underestimate China’s ability to make a comeback,” said Kishore Mahbubani, former President of the UNSC, while speaking to India Today on Sunday.
IMF’s Deputy Managing Director Gita Gopinath also believes that China has the capability to “turn things around”. “After the first quarter which was very strong because of the rebound from the re-opening, China’s economy has slowed,” said Gopinath in an exclusive interview with India Today Group’s News Director Rahul Kanwal. “And we see that in private consumption, the real estate sector, of course, has had a lot of trouble for a long time. We saw some improvement in the first few months, but again we see a deterioration. So that is an area of concern. Investment is down, confidence is down, consumption is down, and private investment is down.”
China, which achieved spectacular growth since it opened up its markets in the late 1970s, is facing a serious crisis due to emerging faultlines in its real estate sector – which accounts for nearly 30 per cent of its GDP, according to CaixaBank Research. China’s second-largest real estate firm – Evergrande Group – has already filed for bankruptcy, and its largest firm Country Garden is on the verge of collapse.
“India is on a growth path, which we saw in China 25 years back. We have strong tailwinds. I personally feel it,” Mittal said.
Sunil Mittal was among the top speakers at the B20 Summit on Aug 25
India is on a growth path which is similar to what was seen in China 25 years back, said Sunil Bharti Mittal, Chairman of Bharti Enterprises, in an exclusive interview with Moneycontrol on the sidelines of B20 Summit India 2023 in New Delhi on August 25.
“India is on a growth path, which we saw in China 25 years back. We have strong tailwinds. I personally feel it,” Mittal said.
Mittal added that India’s story on digital is being talked about all over the world.
“I go around the globe. whether it’s the US or European nations, but importantly Latin, Africa and many of the developing nations are truly remarkably inspiring for India’s run,” he said.
Mittal also noted that India is riding on the back of a digital wave in which a few players need to play a key role on the connectivity front.
Focus on Africa
Adopting Africa as a place to do agriculture can change the world and alter food ecosystems, Mittal said, as he drew attention to the ongoing global crisis in food production.
“Sixty per cent of world’s arable and yet uncultivated land is in Africa. Today we have all seen the crisis that the world is going through on food production. Just adopt Africa as place to do agriculture, perhaps some value added agriculture…the entire world can change,” he said, while speaking at the B20 Summit.
The telecom tycoon added that Africa’s economic integration is gaining momentum, and expressed hope that the African Union will soon become a permanent member of G20.
Mittal asserted that the African voice in G20 is “absolutely important”.
Earlier, Finance Minister Nirmala Sitharaman, while addressing the B20 Summit, said that the current government has been consistently carrying out reforms for the past nine years with stable results, while reforms carried by earlier governments were erratic.
The National Institute of Economic and Social Research said the country is on course to experience five years of “lost” economic growth. It said the “triple shocks” of Brexit, COVID and the war in Ukraine had all contributed to the dire forecast.
The UK is on course to experience five years of “lost” economic growth and is at risk of a recession next year, according to an economic think tank.
The National Institute of Economic and Social Research (Niesr) said by 2024 income inequality will have grown, along with unemployment and levels of debt.
Researchers, writing in the think tank’s latest quarterly outlook, said “elevated housing, energy and food costs” would continue into next year, while gross domestic product (GDP) – a key indicator of a country’s economic output – would likely “barely grow”.
It said GDP was currently 0.5% below the level it was before the pandemic, and would not pass that level for another year – but also cautioned the outlook was “highly uncertain”.
“There are, in fact, even chances that GDP growth will contract by the end of 2023 and a roughly 60% risk of a recession at the end of 2024,” the think tank warned.
Its last forecast in February predicted that the UK would avoid a recession in 2022 – but said the strain from the cost of living crisis would make it “feel like” one.
Niesr’s outlook is more pessimistic than the Bank of England’s forecasts last week, which came as it raised the base rate for the 14th time in a row.
The Bank suggested a recession was unlikely in the coming years but did imply that the economy will effectively flatline all the way through to 2026.
Its chief economist, Huw Pill, also recently warned that food prices may not fall back to what they were prior to the war in Ukraine.
A crisis of confidence in the U.S. banking sector has led to the failure of three midsized banks since March as depositors fled from smaller banks, with calls for the Federal Deposit Insurance Corp (FDIC) to raise its $250,000 limit guarantee on deposits.
Warren Buffett says Berkshire is cautious on banking sector
Warren Buffett on Saturday said Berkshire Hathaway (BRKa.N) is cautious around the banking sector, largely because of poor messaging by officials around government-insured deposits, as well as distorted incentives he said were brought on by banking regulation.
A crisis of confidence in the U.S. banking sector has led to the failure of three midsized banks since March as depositors fled from smaller banks, with calls for the Federal Deposit Insurance Corp (FDIC) to raise its $250,000 limit guarantee on deposits.
The messaging by politicians, government agencies and the media around the safety of the banking system has been poor, the nonagenarian billionaire said at Berkshire’s annual meeting in Omaha, Nebraska.
“The U.S. government and the American public have no interest in having a bank fail and having deposits actually lost by people,” he said.
“We had a demonstration project the weekend of Silicon Valley Bank and the public is still confused.”
In March, startup-focused lender SVB Financial Group (SIVB.O) became the largest bank to fail since the 2008 financial crisis after depositors tried to pull more than $42 billion in a single day, kicking off the deposit flight across other regional banks and prompting the collapse of Signature Bank.
While 89% of SVB’s $175 billion in deposits were uninsured as of the end of 2022, according to the FDIC, depositors were protected, even those whose accounts exceeded $250,000, through a “systemic risk exception” designed to prevent broader contagion to the U.S. banking system.
Berkshire keeps around $128 billion in cash and Treasury bills, Buffett said.
“We want to be there if the banking system temporarily even gets stalled in some way – it shouldn’t – I don’t think it will, but I think it could,” he said.
Part of the reason for that is that incentives in banking regulation are “so messed up,” he said.
First Republic Bank, the latest regional U.S. bank to fail, disclosed that it was offering non-guaranteed jumbo-sized mortgages at fixed rates in its annual report.
“That’s what First Republic was doing and it was in plain sight and the world ignored it until it blew up,” said Buffett, who earlier noted his own father lost his job in 1931 because of a bank run.
“The incentives in bank regulation are so messed up and so many people have an interest in having them messed up — it’s totally crazy,” Buffett said. “So we are very cautious in a situation like that about ownership.”
Buffett made the comments while sitting behind a sign that said “Available for sale,” while his longtime business partner, Charlie Munger, sat behind a “Held-to-maturity” sign, referencing how banks account for their securities, which has been at the heart of the regional bank crisis.
First Republic, which was seized by regulators and sold to JPMorgan N>, had significant losses in its held-to-maturity investment portfolio, mainly government-backed debt.
