OECD inflation hits 25-year high, as Fed’s Powell vows to prevent it from taking hold – as it happened | Business

It’s time to recap.

• Several US interest rate hikes are looming this year, after Federal Reserve Chief Jerome Powell pledged to take action to prevent high US inflation from taking hold.
• During a Senate confirmation hearing, Powell told lawmakers that high inflation was a threat to the Federal Reserve’s employment goals. He told the banking committee that rates are likely to rise this year and that the Fed may also start reducing its balance sheet in 2022.

  Powell also predicted that omicron would only have a short-term impact on the US economy and labor market.

• During the session, Elizabeth Warren challenged Powell on the causes of high inflation, explaining how large companies with little competition were able to raise prices and increase their profit margins.
• The cost of living in the rich countries that make up the OECD has risen at the fastest rate in 25 years, with US inflation hitting an almost 40-year high in November.
• The World Economic Forum has warned that the pandemic has undermined the fight against global warming, in its latest report on global risks.

  The WEF also reported that failure to act on climate change was the biggest global risk, followed by extreme weather and loss of biodiversity.

• The risk report also warned that the space race, between countries and businesses, could lead to heightened global tensions.

Here are all of today’s main stories:

European stock markets managed to recover from Monday’s losses.

The pan-European Stoxx 600 gained 0.85%, as stocks recovered from yesterday’s liquidation,

The major indices have all recovered, despite Jerome Powell making it clear that the Fed plans to tighten monetary policy this year.

In London, the FTSE 100 index gained 46 points, or 0.6%, to 7,491 points. Technology-driven investment fund Scottish Mortgage (+ 5%) was the best performer, followed by the retailer Following (+ 4.5%), veterinary pharmaceutical company Dechra (+ 3.4%) and large chain JD Sports (+ 2.8%).

Danni hewson, financial analyst at AJ Bell, says some investors have done good deals:

“The Wall Street indices couldn’t quite make up their minds at the start of the session on how the day was going to unfold, but so far the Fed chairman’s comments to Congress have not elicited a big shocks and Tuesday may well live up to its headline turnaround after all.

Inflation is clearly a mega problem for the new year and investors have realigned their portfolios to prepare for rate hikes. But yesterday’s sale was emotional and after a good night’s sleep some investors are already seizing the opportunities that presented themselves, deciding the long game might not be as different tomorrow as it was last week. Peloton, DocuSign, and PayPal are among the Nasdaq’s big bucks, with the drop just too tempting for some.

Jerome Powell’s comments today are consistent with an interest rate hike in March, said Paul Ashworth of Capital Economics.

He explains:

In his Senate re-appointment hearing today, Fed Chairman Jerome Powell echoed the increasingly hawkish rhetoric coming from other officials.

He admitted that “the constraints on the supply side have been very consistent and very long lasting” and that the Fed “was not seeing progress … we thought we would see it”. In these circumstances, he wants to try to bring interest rates “to a more neutral level, then maybe tight”.

Ashworth predicts that there will be four interest rate hikes in the United States this year, raising the federal funds policy range to 1.00% -1.25% by the end of 2022 and from 2.00% to 2.25% by the end of 2023.

Regarding the climate crisis, Powell says climate stress testing will “most likely” be a “key tool going forward,” to ensure that major US banks are aware of the financial implications.

Fed Chairman says:

“We are looking at climate stress tests, I think it’s very likely that climate stress scenarios, as we like to call them, will be a key tool going forward.”

These scenarios will test whether large financial institutions understand all the risks they take, including risks that may be inherent in their business model regarding climate change over time, Powell explained.

Progressive groups have been disappointed that the Fed has not shown more leadership on climate issues and are hopeful that Powell can fix it in his second term. The Bank of England announced weather stress tests last year.

Senator Elizabeth Warren challenges Jerome Powell on how “concentrated corporate power” has allowed companies to drive up prices, beyond just passing on their higher costs.

Warren told the Federal Reserve chief that American families have faced higher prices at the grocery store and gas station in recent months.

Regarding “Econ 101”, Warren argues that companies that dominate the market, without much competition, can increase their profits at the expense of customers – beyond the simple cost of supply chain issues, demand unexpected and higher wages.

Q: If you are a business that has eaten up most of the competition and cornered the market, is it easier for you to increase your customers’ prices and maximize profits because you don’t have to worry about losing business. have you lost the discipline imposed by the market?

In principle, if you’ve lost your competition and are a monopoly, you can increase your prices, admits Fed Chairman Powell.

Warren says two of the country’s three largest publicly traded companies have higher profit margins than before the pandemic. It doesn’t make it look like they’re just passing on the costs

Q: Does this increase profit margins and higher market concentration in industry after industry, suggest some companies pass on increased costs and also charge more to increase profit margins?

Powell responds that it could be fair, or it could be “because the demand is so incredibly high and they are raising prices because they can.”

That’s the point, Warren retorts. Market concentration has allowed giant companies to hide behind claims of increased costs to increase their profit margins – so the consumer pays more both because of the higher costs and because of the business. .

Warren insists:

We cannot ignore the role that concentrated corporate power has played in creating the conditions for rising prices.

The Federal Reserve’s discussion paper on central bank digital currencies is expected to be released in the coming weeks.

Jerome Powell told the Senate Banking Committee that the report – on whether the Fed should implement its own digital currency – was delayed last fall as policymakers focused on adjusting monetary policy, but is expected to be released in the coming weeks.

He says:

“The report is really ready to go.

“It will be more of an exercise of asking questions and seeking public input rather than taking a lot of positions.”

Flexible working is here to stay ….

Powel told the committee that Omicron will only have a “short-lived” impact on jobs and economic growth.

He explains that the rapidly spreading variant of Covid-19 may lead to a pause in hiring and short-term growth, but the outlook could be very positive once the infections subside.

Interestingly, Jerome Powell tells senators that inflation poses a threat to the Fed’s goal of maximum jobs.

Achieving full employment requires price stability, he explains – a sign that the Fed could claim that interest rate hikes would protect the job market?

The Fed will, in all likelihood, begin to normalize its policy by raising US interest rates this year, Jerome Powell told the Senate committee – officials predicting three increases in 2022, on average.

He explains that the US economy neither needs nor wants a very accommodating monetary policy.

So the Fed could also start reducing its balance sheet later this year – reversing some of the bond buying stimulus it has led since the start of the pandemic, which is expected to end in March.

Sarah Foster of Bankrate has the details: