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Canada Jetlines, Latest Airline to Enter a Busy Field, Is Going to Take Off – CBC.ca

The US Federal Reserve made its most opaque calculation on Wednesday of what it would take to finally contain painfully high inflation: slower growth, higher unemployment and possibly a recession.

In a press conference, Chairman Jerome Powell acknowledged what many economists have been saying for months: that the Fed’s goal is to make a “soft landing” — in which it could slow growth enough to curb inflation, but not so much a recession – seems increasingly unlikely.

“The odds of a soft landing,” Powell said, “will likely decline” as the Fed steadily raises borrowing costs to slow the worst inflation in four decades. “Nobody knows if this process will lead to a recession and, if so, how big that recession would be.”

Before Fed policymakers consider halting their rate hikes, he said, they should see continued sluggish growth, a “modest” rise in unemployment and “clear evidence” that inflation is returning to its 2% target. .

“We need to get inflation behind us,” Powell said. “I wish there was a painless way to do that. There isn’t.”

Powell’s comments followed another substantial three-quarters of a points rate hike — the third straight — by the Fed’s policy-making committee. The latest move brought the Fed’s key short-term interest rate, which affects many consumer and corporate loans, to 3% to 3.25%. That is the highest level since early 2008.

Falling gas prices have slightly lowered headline inflation, which was still a painful 8.3% in August compared to a year earlier. Those falling prices at the gas pump may have contributed to a recent rise in President Joe Biden’s public approval ratings, which Democrats hope will boost their prospects in the November midterm elections.

On Wednesday, Fed officials also predicted further jumbo increases to come, raising their benchmark rate to about 4.4% by the end of the year — a full point higher than they had recently envisioned in June. And they expect to raise the rate again to about 4.6% next year. That would be the highest level since 2007.

By raising borrowing rates, the Fed is making it more expensive to take out a mortgage or a car or business loan. Consumers and businesses will then probably borrow and spend less, causing the economy to cool down and slow down inflation.

Other major central banks are also taking aggressive steps to fight global inflation, fueled by the global economy’s recovery from the COVID-19 pandemic and then Russia’s war on Ukraine. On Thursday, the British central bank raised its key interest rate by half a percentage point – to its highest level in 14 years. It was the seventh consecutive step by the Bank of England to raise borrowing costs at a time of rising food and energy prices, which have fueled a serious crisis in the cost of living.

This month, the Swedish central bank raised its key interest rate by a full point. And the European Central Bank delivered its largest rate hike ever with a three-quarter point hike for the 19 countries that use the euro.

In their quarterly economic forecasts Wednesday, Fed policymakers also predicted that economic growth will remain weak in the coming years, with unemployment reaching 4.4% by the end of 2023, up from its current level of 3.7%. Historically, economists say, every time unemployment has risen by half a point in a number of months, a recession has always followed.

“So the forecast (from the Fed) is an implicit admission that a recession is likely unless something out of the ordinary happens,” said Roberto Perli, an economist at Piper Sandler, an investment bank.

Fed officials now expect the economy to grow by just 0.2% this year, well below their forecast of 1.7% growth just three months ago. And they forecast slow growth of less than 2% from 2023 to 2025. Even with the hefty rate hikes the Fed foresees, it still expects core inflation — excluding volatile food and gas costs — to reach 3.1% by the end of 2023. , well above the 2% target.

Powell warned in a speech last month that the Fed’s measures will “cause pain” to households and businesses. And he added that the central bank’s commitment to bring inflation back to its 2% target was “unconditional”.

Short-term interest rates at levels now envisioned by the Fed will force many Americans to pay much higher interest payments on a variety of loans than in the recent past. Last week the average fixed mortgage rate was 6%, its highest point in 14 years, which helps explain why home sales have fallen. According to Bankrate.com, credit card rates have reached their highest level since 1996.

Inflation now appears to be increasingly fueled by higher wages and consumers’ constant desire to spend money, rather than the supply shortages that had ravaged the economy during the pandemic recession. On Sunday, Biden said on CBS’ “60 Minutes” that he believed a soft landing for the economy was still possible, suggesting his administration’s recent energy and health care legislation would lower drug and health care prices.

The law could help drive down prescription drug prices, but outside analysis suggests it will do little to curb overall inflation immediately. Last month, the unbiased Congressional Budget Office ruled it would have a “negligible” effect on prices through 2023. The University of Pennsylvania’s Penn Wharton Budget Model went even further by saying that “the impact on inflation is statistically insignificant.” zero is distinguishable” in the next decade.

Still, some economists are beginning to express concern that the Fed’s rapid rate hikes — the fastest since the early 1980s — will cause more economic damage than is needed to tame inflation. Mike Konczal, an economist at the Roosevelt Institute, noted that the economy is already slowing and wage increases — a key driver of inflation — are leveling off, and some measures are even slowing them down a bit.

Surveys also show that Americans expect inflation to decline significantly over the next five years. That’s an important trend because inflation expectations can live up to themselves: if people expect inflation to slow, some will feel less pressure to accelerate their purchases. Less spending would then help to moderate price increases.

The Fed’s rapid rate hikes reflect steps other major central banks are taking and add to concerns about a possible global recession. The European Central Bank raised its benchmark interest rate by three quarters of a percentage point last week. The Bank of England, the Reserve Bank of Australia and the Bank of Canada have all made significant rate hikes in recent weeks.

And in China, the world’s second largest economy, growth is already suffering from the government’s repeated COVID lockdowns. If the recession sweeps through most major economies, it could also derail the US economy.

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