Business Analyst - June 16

Thursday, June 16, 2022
US makes biggest interest
rate rise in almost 30 years
THE US central bank has
announced its biggest interest
rate rise in nearly 30 years as it
ramps up its fight to rein in
soaring consumer prices.
The Federal Reserve said it would
increase its benchmark rate by three
quarters of a percentage point to a range of
1.5% to 1.75%.
The rise, the third since March, comes
after inflation surged unexpectedly last
month.
More rises are likely, the bank said.
Forecasts released after the meeting
showed officials expect interest rates could
reach 3.4% by the end of the year, a move that
will ripple out to the public in the form of
higher borrowing costs for mortgages, school
loans and credit cards.
as central banks around the world take
similar steps, it marks a massive change for
the global economy, where businesses and
households have enjoyed years of low cost
loans.
"Most advanced economy central banks
and some emerging market central banks
are tightening policy in sync. That is a global
environment that we've not been
accustomed to in the past few decades, and
that will represent ramifications for the
business sector and for consumers
throughout the world," said Gregory Daco,
chief economist at strategy consulting firm
EY-Parthenon.
In the UK, where consumer prices
jumped 9% in april, the Bank of England is
expected to announce its fifth rate rise since
December on Thursday, pushing its
benchmark rate above 1% for the first time
since 2009.
Brazil, Canada and australia have also
raised rates, while the European Central
Bank has outlined plans to do so later this
summer.
In the US, which slashed rates to support
the economy when the pandemic hit in 2020,
the Fed has already raised rates twice this
year, by 0.25 percentage points in March and
another half point in May.
at the time, Federal Reserve chairman
Jerome Powell said officials were not
considering sharper rises.
But figures on Friday, which showed US
inflation rising to 8.6% in May - the fastest
pace since 1981 - pushed officials to move
more aggressively, Mr Powell said.
"Inflation has obviously surprised to the
upside over the past year and further
surprises could be in store," he said. "We
therefore will need to be nimble."
Many analysts say the Fed is struggling
to catch up, after inflation started to emerge
in the US last year, sparked by a stronger
than expected economic rebound from the
shock of the Covid-19 shutdowns.
With demand surging, helped by trillions
of dollars in government pandemic relief,
including direct cheques to households,
officials, including Mr Powell, initially
dismissed the price rises as transitory,
arguing they would abate as supply chain
issues related to the virus resolved.
But the problems have proven persistent,
as new outbreaks of virus variants and
ongoing Covid-19 shutdowns continue to
disrupt activity, and the war in Ukraine
propels global food and energy prices higher.
Recent surveys suggest the public
expects the problem to continue to worsen,
despite the Fed's vows to act.
"The Fed is under the gun and facing an
inflation credibility test," said economist
David Beckworth, senior research fellow at
the Mercatus Center at George Mason
University.
The last time the Fed announced a rate
hike of this size was 1994.
By acting late, and now moving more
aggressively to compensate, policymakers
face a greater chance that their actions will
induce a downturn, Mr Daco said.
"I'm increasingly worried," he added. "I
wouldn't be surprised that around the turn
of the year we face an environment where
growth is stalling and we're pretty close to a
recessionary environment, with the
unemployment rate on the rise and no
longer declining."
Projections released by the Fed show
officials expects economic growth of 1.7%
this year, a full percentage point lower than
they forecast in March.
Unemployment is expected to rise to
3.7%. officials also removed a line from their
end of meeting statement - which typically
shows little change and is closely scrutinised
- saying that they expected the labour
market to remain strong and inflation fall
back to the bank's 2% target.
Inflation expectations
Ignacio Lopez is eager to see inflation
brought under control.
For the last 18 months, the Boston-based
chef has been watching food prices climb as
he stocks up for his restaurant. Prices for
items with complicated supply chains, like
packaged goods and imported cheese, are
particularly under pressure, he says.
"It's crazy and it doesn't stop," he says.
"Every week things go up."
The business has raised its own prices to
offset the costs, but he says he can't go too far
without losing customers. So his profits are
still taking a hit.
He says he is worried that the rate
increases won't help, noting that demand
remains weak due to Covid, which has cut
into the after-work gatherings that used to
drive his business.
"We're just going to keep managing it as
tight as we can, trying not to increase our
prices beyond our market and hope things
calm down," he says.
Police probe shock mass abduction reports in Abuja
PoLICE in nigeria say they are
investigating a reported mass
abduction in the capital abuja.
Kidnappings for ransom by
armed gangs are becoming
increasingly common across
the country.
But what is extraordinary
in this case is that one of the
alleged hostages posted a
tweet and sent a Whatsapp
message sharing their location
and appealing for help as they
were being driven away by the
gunmen to an unknown
destination.
That is how the news of
the kidnappings first came to
public attention - prompting a
social media outcry for the
authorities to act to rescue
them.
The Twitter poster said
there were 17 hostages,
including three pregnant
women and two children,
kidnapped from different
parts of the nigerian capital,
abuja.
The post got nearly 40,000
retweets and more than 2,500
people sent messages - many
of them urging the nigerian
authorities to take action.
The Federal Capital
Territory command of the
nigeria police said
investigations were ongoing,
called for calm and thanked
those who had given what
they described as ‘’helpful
information’’.
The nigerian authorities
are facing increasing criticism
for failing to tackle widespread
insecurity in the country
including frequent killings
and kidnappings.