US Federal Reserve raises key rate by a half-point in bid to tame inflation

US Federal Reserve raises key rate by a half-point in bid to tame inflation
Federal Reserve Board Chair Jerome Powell speaks during a news conference at the Federal Reserve, Wednesday, May 4, 2022 in Washington. (AP)
Short Url
Updated 04 May 2022

US Federal Reserve raises key rate by a half-point in bid to tame inflation

US Federal Reserve raises key rate by a half-point in bid to tame inflation

WASHINGTON: The Federal Reserve intensified its fight against the worst inflation in 40 years by raising its benchmark interest rate by a half-percentage point Wednesday — its most aggressive move since 2000 — and signaling further large rate hikes to come.
The increase in the Fed’s key short-term rate raised it to a range of 0.75 percent to 1 percent, the highest point since the pandemic struck two years ago.
The Fed also announced that it will start reducing its huge $9 trillion balance sheet, made up mainly of Treasury and mortgage bonds. Reducing those holdings will have the effect of further raising loan costs throughout the economy.
With prices for food, energy and consumer goods accelerating, the Fed’s goal is to cool spending — and economic growth — by making it more expensive for individuals and businesses to borrow. The central bank hopes that higher costs for mortgages, credit cards and auto loans will slow spending enough to tame inflation yet not so much as to cause a recession.
It will be a delicate balancing act. The Fed has endured widespread criticism that it was too slow to start tightening credit, and many economists are skeptical that it can avoid causing a recession.
Speaking at a news conference Wednesday, Chair Jerome Powell made clear that further large rate hikes are coming. He said that additional half-point increases in the Fed’s key rate “should be on the table in the next couple of meetings” in June and July.
But Powell also sought to downplay any speculation that the Fed might be considering a rate hike as high as three-quarters of a percentage point.
“A 75-basis-point hike is not something that the committee is actively considering,” he said — a remark that appeared to cause stock indexes to jump. Before he spoke, the Dow Jones Industrial Average had risen modestly. Less than an hour later, the Dow was up 700-plus points.
At his news conference, Powell stressed his belief that “restoring price stability” — that is, curbing high inflation — is essential to sustaining the economy’s health.
In their statement Wednesday, the central bank’s policymakers noted that Russia’s invasion of Ukraine is worsening inflation pressures by raising oil and food prices. It added that “COVID-related lockdowns in China are likely to exacerbate supply chain disruptions,” which could further boost inflation.
Inflation, according to the Fed’s preferred gauge, reached 6.6 percent last month, the highest point in four decades. Inflation has been accelerated by a combination of robust consumer spending, chronic supply bottlenecks and sharply higher gas and food prices, exacerbated by Russia’s war against Ukraine.
Starting June 1, the Fed said it would allow up to $48 billion in bonds to mature without replacing them, a pace that would reach $95 billion by September. At September’s pace, its balance sheet would shrink by about $1 trillion a year. The balance sheet more than doubled after the pandemic recession hit as the Fed bought trillions in bonds to try to hold down long-term borrowing rates.
Powell has said he wants to quickly raise the Fed’s rate to a level that neither stimulates nor restrains economic growth. Fed officials have suggested that they will reach that point, which the Fed says is about 2.4 percent, by year’s end.
Some economists warn that some of the factors fueling inflation — notably, shortages of supplies and workers — are outside the Fed’s ability to solve.
“The Fed can’t fix supply-side challenges with higher interest rates,’’ said Jim Baird, chief investment officer at Plante Moran Financial Advisers. “Fed tightening doesn’t re-open Chinese factories, increase grain shipments from Ukraine, re-position container ships to where they are needed or hire truckers to move goods.’’
The Fed’s credit tightening is already having some effect on the economy. Sales of existing homes sank 2.7 percent from February to March, reflecting a surge in mortgage rates related, in part, to the Fed’s planned rate hikes. The average rate on a 30-year mortgage has jumped 2 percentage points just since the start of the year, to 5.1 percent.
Yet by most measures, the overall economy remains healthy. This is especially true of the US job market: Hiring is strong, layoffs are few, unemployment is near a five-decade low and the number of job openings has reached a record high.
Powell has pointed to the widespread availability of jobs as evidence that the labor market is tight – “to an unhealthy level” that would tend to fuel inflation. The Fed char is betting that higher rates can reduce those openings, which would presumably slow wage increases and ease inflationary pressures, without triggering mass layoffs.
For now, with hiring robust — the economy has added at least 400,000 jobs for 11 straight months — and employers grappling with labor shortages, wages are rising at a roughly 5 percent annual pace. Those pay raises are driving steady consumer spending despite spiking prices. In March, consumers increased their spending 0.2 percent even after adjusting for inflation.
Even if the Fed’s benchmark rate were to go as high as 2.5 percent by year’s end, Powell said last month, the policymakers may still tighten credit further — to a level that would restrain growth — “if that turns out to be appropriate.”
Financial markets are pricing in a rate as high as 3.6 percent by mid-2023, which would be the highest in 15 years. Shrinking the Fed’s balance sheet will add another layer of uncertainty surrounding how much the Fed’s actions may weaken the economy.
Complicating the Fed’s task is a slowdown in global growth. COVID-19 lockdowns in China are threatening to cause a recession in the world’s second-largest economy. And the European Union is facing higher energy prices and supply chain disruptions after Russia’s invasion of Ukraine.
What’s more, other central banks around the world are also raising rates, a trend that could further imperil global growth. On Thursday, the Bank of England is expected to raise its key rate for the fourth straight time. The Reserve Bank of Australia increased its rate Tuesday for the first time in 11 years.
And the European Central Bank, which is grappling with slower growth than in the United States or the United Kingdom, may raise rates in July, economists expect.


Techies in Dubai boast top-dollar salaries 

Techies in Dubai boast top-dollar salaries 
Updated 06 July 2022

Techies in Dubai boast top-dollar salaries 

Techies in Dubai boast top-dollar salaries 
  • Software engineers in Dubai earn nearly 30% more than workers in London, Amsterdam and Berlin

LONDON: Software engineers in Dubai with at least three years of experience earn the third highest salaries in the world compared to other global technology hubs, according to global consulting firm Mercer.

When compared to other global tech hubs such as London, Amsterdam, and Berlin, software engineers in Dubai earn nearly 30 percent more.

This reaffirms the UAE’s ambition to attract top digital talent and become a global tech talent magnet that fuels the digital economy’s growth.

Mercer’s Cost of Living 2022 survey also revealed that while Dubai ranked as the 31st most expensive city to live and work in for expatriates this year, its cost of living remains significantly lower than most tech hubs, including London (seventh), Singapore (eighth), New York (11th), San Francisco (19th), and Amsterdam (25th).

Almost 60 percent of UAE employers provide flexible working, reducing employees’ transportation costs. Dubai is also less expensive in terms of housing and rental costs, which accounts for a significant portion of the cost of living in a city.

“Dubai’s status as a global business hub, coupled with its income tax-free environment, world-class infrastructure, safety, and high quality of life make the emirate a very attractive market for talent,” said Vladimir Vrzhovski, workforce mobility leader at Mercer Middle East.

He added: “The demand for tech talent, in particular, will continue to grow in the UAE given the nation’s drive to be a global capital of the digital economy. Above all, a key incentive for tech talent is the opportunity for a significant uplift in salary when compared to other tech hubs, where the cost of living is higher in terms of transportation and housing.

“While inflation and rising fuel costs are a pressure on the cost of living around the globe, Dubai is building a nurturing and highly competitive tech ecosystem that pays highly competitive salaries — creating an environment that promises to attract and retain the best talent globally.

“Over the years, the UAE has also implemented several initiatives that make it easier for talent to live, work and stay in the country. The launch of the Golden Visa program in addition to Dubai’s recently announced Talent Pass aims to attract global professionals in the fields of technology amongst other key areas.

“National initiatives, such as the National Program for Coders launched last year, is designed to attract 100,000 coders from around the globe and set up 1,000 digital companies by 2026.”


Ben & Jerry’s sues parent Unilever to block sale of Israeli business

Ben & Jerry’s sues parent Unilever to block sale of Israeli business
Updated 06 July 2022

Ben & Jerry’s sues parent Unilever to block sale of Israeli business

Ben & Jerry’s sues parent Unilever to block sale of Israeli business

NEW YORK: Ben & Jerry’s on Tuesday sued its parent Unilever Plc to block the sale of its Israeli business to a local licensee, saying it was inconsistent with its values to sell its ice cream in the occupied West Bank, according to Reuters.

The complaint filed in the US District Court in Manhattan said the sale announced on June 29 threatened to undermine the integrity of the Ben & Jerry’s brand, which Ben & Jerry’s board retained independence to protect when Unilever acquired the company in 2000.

An injunction against transferring the business and related trademarks to Avi Zinger, who runs American Quality Products Ltd, was essential to “protect the brand and social integrity Ben & Jerry’s has spent decades building,” the complaint said.

Ben & Jerry’s said its board voted 5-2 to sue, with the two Unilever appointees dissenting.

Unilever, in a statement, said it does not discuss pending litigation, but that it had the right to sell the disputed business and the transaction had already closed.

“It’s a done deal,” Zinger’s lawyer Alyza Lewin said in a separate statement. The sale resolved Zinger’s own lawsuit in March against Ben & Jerry’s for refusing to renew his license.

The dispute highlights challenges facing consumer brands taking a stand on Israeli settlements in the occupied West Bank.

Most countries consider the settlements illegal. In April 2019, Airbnb Inc. reversed a five-month-old decision to stop listing properties in the settlements.

Last July, Ben & Jerry’s said it would end sales in the occupied West Bank and parts of East Jerusalem, and sever its three-decade relationship with Zinger.

Israel condemned the move, and some Jewish groups accused Ben & Jerry’s of anti-Semitism. Some investors, including at least seven US states, divested their Unilever holdings.

Unilever has more than 400 brands including Dove soap, Hellmann’s mayonnaise, Knorr soup and Vaseline skin lotion.

Ben & Jerry’s was founded in a renovated gas station in 1978 by Ben Cohen and Jerry Greenfield.

No longer involved in Ben & Jerry’s operations, they wrote in the New York Times last July that they supported Israel but opposed its “illegal occupation” of the West Bank. 

Related


Kuwait Lender KFH to acquire Bahrain's Ahli United for $12bn

Kuwait Lender KFH to acquire Bahrain's Ahli United for $12bn
Updated 06 July 2022

Kuwait Lender KFH to acquire Bahrain's Ahli United for $12bn

Kuwait Lender KFH to acquire Bahrain's Ahli United for $12bn

RIYADH: Kuwait Finance House has agreed to fully acquire Ahli United Bank for $11.6 billion.

KFH plans to offer one share per 2.695 shares of Ahli United, implying a $1.04 offer price, according to Bloomberg.

Through the merger, the Gulf will have its seventh-largest lender worth $115 billion, a rare cross-border acquisition.


Saudi developer Jabal Omar plans $1.4bn capital hike through debt conversion

Saudi developer Jabal Omar plans $1.4bn capital hike through debt conversion
Updated 06 July 2022

Saudi developer Jabal Omar plans $1.4bn capital hike through debt conversion

Saudi developer Jabal Omar plans $1.4bn capital hike through debt conversion

RIYADH: Saudi developer Jabal Omar Development Co. has received approval from the Capital Market Authority to increase its capital by SR5.3 billion ($1.4 billion).

The listed company will finance the capital plan by converting debt, according to a statement by CMA.

The move is subject to approval from the company’s shareholders as well as completing the required regulatory procedures.

The Makkah-based developer’s losses narrowed by 47 percent and revenues surged 408 percent in the first quarter of 2022, due to improved post-pandemic business operations.


Microsoft's $69bn Activision deal under investigation by UK regulator

Microsoft's $69bn Activision deal under investigation by UK regulator
Updated 06 July 2022

Microsoft's $69bn Activision deal under investigation by UK regulator

Microsoft's $69bn Activision deal under investigation by UK regulator

RIYADH: Microsoft Corp.’s $68.7-billion planned purchase of American video game company Activision Blizzard Inc is under investigation by the UK's antitrust watchdog, Bloomberg reported.

The Competition and Markets Authority will decide by Sept. 1 whether the agreement between the US tech giant and the maker of the Call of Duty game series limits competition and increases prices.

The regulators will take notice of Microsoft's ownership of Activision to understand if the deal could limit rivals' access to the company's biggest games.

The US Federal Trade Commission is also reviewing the deal, chair Lina Khan told lawmakers in June.