Central bankers move towards “normalization”

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Good evening from London where we reflect on one of the busiest weeks for central bankers in some time, with significant movement in interest rates coming from Norway; policy updates from the US Federal Reserve, Bank of England and Bank of Japan; and rate hikes in four emerging markets: Pakistan, Hungary, Paraguay and Brazil. There was even an unexpected rate cut in Turkey.

Oystein Olsen rarely makes international headlines, but the head of Norges Bank was in the spotlight on Thursday as Norway became the first major Western economy to raise interest rates since the start of the pandemic.

“A normalizing economy now suggests that it is appropriate to start a gradual normalization of the policy rate,” said Olsen, as he announced an increase of 0.25 percentage point from the record low of zero .

Central bankers in developed economies are generally happy that the economic recovery has turned out to be stronger than initially expected, but are starting to worry that keeping interest rates at historically low levels for too long may increase. inflation and excessive borrowing.

In the United States, Fed chief Jay Powell has suggested the bank could start tightening policy in November with the “taping” of its $ 120 billion per month asset purchase program and a possible end of the program in the middle of next year. Fed officials have also suggested that a rate hike may come sooner than expected.

Across the Atlantic, the Bank of England’s monetary policy committee voted to keep its key rate at an all-time low of 0.1%, but opened up the possibility of “modest tightening.” Policy over the next few years, with possible inflation reaching 4% in the final quarter of 2021. Investors now expect a first rate hike by February, with an external possibility of an increase this year.

Despite a number of potential hurdles, such as inflationary pressures that are not as transient as bank officials claim – a view reiterated again this week by European Central Bank President Christine Lagarde – and the recovery economic hampered by more dangerous variants of the coronavirus, the key message from the Fed and other central banks is clear, the FT noted: “The exceptional policies of the Covid crisis. . . are beginning to come to an end ”.

Latest news

  • US new home sales hit four-month high in August, a sign that home builders are tackling supply chain bottlenecks

  • Rising inflation could lead to two UK interest rate hikes by next May, Bank of America economists say

  • Norway lifts almost all pandemic restrictions on Saturday, becoming the last Nordic country to return to normal

For the latest updates on coronaviruses, visit our live blog

Good to know: the economy

Preliminary results from the IHS Markit Purchasing Managers Index for September showed costs for eurozone manufacturers at their fastest rate in 20 years, fueled by supply shortages. There was also disappointing news for the service sector where the boost from reopening economies earlier in the summer started to wear off.

The PMI data for UK painted a similar picture of a slowing recovery in the third quarter as price pressures became more intense and supply chain problems affected growth in the manufacturing sector. Chris Williamson, chief economist at IHS Markit, said the data “would add to concerns that the UK economy is heading into an episode of ‘stagflation’, with growth continuing to decline as prices rise more and more” .

Latest for UK / Europe

Investors brace for a change of government in Germany after Sunday’s general election, which, if the polls are correct, would introduce a left-wing alliance and a new focus on spending rather than debt reduction under Angela Merkel. The Financial Times’ preference is for a modernizing administration with a “sharp” increase in public investment and more tax incentives for the private sector. Here is our Big Read on the End of an Era.

World’s last

US President Joe Biden’s proposal tax changes to raise money for his $ 3.5 billion social spending proposals go through the haggling process in Congress known as “reconciliation.” Take our 10-question quiz to learn more about the plans.

Foreign investors informed Vietnam that strict closures in the Ho Chi Minh City area, one of Asia’s main manufacturing hubs, could force them to shift production to other regions. Suppliers or operations that have been disrupted include Intel, Toyota, Ikea, Nike, and Adidas.

Namely: company

The supply chain crisis shows little sign of easing. In the UK, supermarket shelf vacancies are widening and fuel shortages are spreading at service stations due to a shortage of tanker drivers. Stung by a string of headlines, Prime Minister Boris Johnson today ordered a swift solution to the carrier shortage, including the ability to issue temporary visas to foreign truck drivers.

In the United States, retailers have advanced holiday orders to try and beat bottlenecks, not just for toys and seasonal products, but for “anything you can get your hands on”. Faced with container and shipping costs up to six times higher than normal, Costco chartered three ships to lighten the load. Meanwhile, US officials are pushing semiconductor companies for “more transparency” over their supply chains as the global chip crisis continues.

Hotels in vacation destinations across Europe may have benefited from an increase in summer bookings, but for urban sites, especially those that normally attract business travelers, winter could be harsh. Developers remain optimistic, however, and 2021 and 2022 could still be record years for new openings.

Chart showing UK leading hotel projects

Overview of science

Vaccines: BioNTech / Pfizer said their vaccine – the first to be approved in the United States for adolescents over 12 years of age – was safe and elicited “robust” immune responses in children aged five to 11, while he announced his intention to submit test data to regulators. Although it has not yet been approved by US or European regulators, Novavax is seeking WHO approval for the emergency use of its vaccine, which would allow it to be used in the Covax program to provide vaccines to developing countries. AstraZeneca, in partnership with VaxEquity, will use RNA technology that has been proven to work with coronavirus vaccines to create a new line of therapeutic drugs.

Boosters: UK started giving booster shots this week, starting with those living and working in care homes. In the United States, however, there has been a series of setbacks for the president with scaled-back stimulus packages by health officials and regulators from the FDA and CDC. In Europe, the main regulator should decide in early October on the possible use of a booster dose of the BioNTech / Pfizer shot, according to Reuters. Johnson & Johnson said a booster in addition to its single-shot vaccine increased protection against symptomatic Covid-19 to 94%.

Treatments: Gilead said its drug Remdesivir reduced the risk of hospitalization from Covid-19. Although the World Health Organization has rejected the drug’s effectiveness, it remains, under the brand name Veklury, the only antiviral drug approved for Covid-19 by U.S. regulators.

Pandemic control: The lead scientist behind the UK study Zoe Covid said the UK had more cases than most countries in Europe due to the lack of masks and social distancing, coupled with the fact “that we ignore the symptoms ”. The government recognizes a cough, fever, and loss of smell as the main symptoms of Covid, but Zoe researchers argue for a wider range of symptoms, including a sore throat, runny nose and sneezing. Cases of Covid among schoolchildren in England have reached an all-time high, with a parallel rise in infection among people aged 30 to 49 – their parents’ generation.

Chart showing cases among school-aged children in England are at an all-time high, and there are signs that this is spilling over to their parents' age group

Well I never have: UK greenhouse gas emissions fell 13% last year as travel dried up, official statistics suggest, suggesting more hybrid forms of work could be of lasting benefit to the environment.

Covid cases and vaccinations

Total global cases: 230.6 m

Get the latest global image with our vaccine tracker

And finally …

Which of us hasn’t dreamed at some point of a bowler hat that could behead a villain 50 paces away and a nifty ejection seat in the back of an Aston Martin? With No time to die The 25th 007 movie, finally in theaters next week, Peter Aspden looks back on a long-standing bond with Bond.

Movie scene
Sean Connery – surely everyone’s best Bond – demonstrates the golden touch © Alamy

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