Charting the global economy: Festive cheer for Fed as US inflation softens, BOJ sticks with negative rates
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World’s five largest container liners — with 65% of global capacity — have suspended transits through the Red Sea. This means higher shipping costs and longer delivery timelines. How will this affect inflation in Europe?
The Fed’s preferred gauge of underlying inflation barely rose in November and trailed policymakers’ 2% target by one measure (Bloomberg file image)
The Federal Reserve received some holiday cheer as inflation continued to soften while consumer demand firmed, and the Bank of Japan stuck with the world’s last negative interest rate.
Meantime, maritime attacks carried out by Houthi rebels in Yemen have disrupted shipping in the Red Sea, prompting a rerouting of cargoes that’s raised costs.
The recent spate of attacks by Yemen’s Houthi rebels on vessels transiting the major shipping route has resulted in several large shipping companies avoiding the waterway. The decision by the world’s five largest container liners — with 65% of global capacity — to suspend transits through it means higher shipping costs and longer delivery timelines. Still, the effect on inflation in Europe will probably be limited, according to Bloomberg Economics.
Bank Indonesia left interest rates unchanged, Chile sped up the pace of its easing, and Hungary signaled it will keep lowering borrowing costs. Turkey’s central bank delivered its seventh rate hike to curb inflation. Central bankers in the Czech Republic reduced rates for the first time since 2020.
The Fed’s preferred gauge of underlying inflation barely rose in November and trailed policymakers’ 2% target by one measure, reinforcing the central bank’s pivot toward interest-rate cuts next year. On a six-month annualized basis, the core metric rose 1.9%, the first time in more than three years that this measure is below the Fed’s target.
Even before the Fed has begun cutting interest rates, the mere anticipation of such moves is already thawing the housing market. The bounceback comes as mortgage rates have declined by more than one percentage point in eight weeks, the biggest drop over a comparable period since 2009.
More than half of Canadians say their personal finances are worse today than in 2015, when Prime Minister Justin Trudeau was elected on a promise to help the middle class and those aspiring to join it. Some 53% said their personal finances are worse now than eight years ago, according to the poll conducted by Nanos Research for Bloomberg News, while 24% said they were better off and 21% said there had been no change.
Help wanted: President of a high-profile, regional bank who gets a coveted seat deciding US interest rates. Must have expertise in arcane subjects, spotless personal finances and excellent communication skills. Finding such candidates who fit the complex criteria to lead one of the Fed’s 12 reserve banks is taking considerably longer than it used to.
Asia
The Bank of Japan stuck with the world’s last negative interest rate and offered no guidance on if it might scrap the policy next year. The yen fell sharply after the decision. The central bank kept its short-term rate at minus 0.1% and maintained its yield curve control parameters in a unanimous decision at the end of a two-day gathering.
A measure of foreign investment into China fell in November to an almost four-year low, underlining how geopolitical tensions and a slowing economy have combined to convince foreign companies to slow their expansion.
Singapore’s exports returned to growth for the first time in more than a year, although it was hardly a sign of recovery in external demand.
Europe
German business expectations worsened for the first time since August, undermining hopes that a recovery in Europe’s biggest economy will take hold early next year.
Germany will sell a smaller volume of federal debt next year as the government continues to wind down aid earmarked to offset the impact of the Covid-19 pandemic and the energy crisis.
Emerging Markets
Paraguay’s central bank lowered its benchmark interest rate by a larger-than-expected 50 basis points after successfully bringing inflation to target earlier this year. Slowing inflation across much of Latin America has allowed Brazil, Chile and Uruguay to unwind some of the world’s most aggressive monetary tightening campaigns in the aftermath of the pandemic.
Brazil’s central bank reinforced there’s still a long way to go to bring inflation back to target, warning that the El Nino weather pattern may have a bigger impact on food prices than initially thought.
