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Briefs: Fed ramps up inflation fight in economy tough enough to cope

The Edge Singapore
The Edge Singapore3/17/2022 08:58 PM GMT+08  • 8 min read
Briefs: Fed ramps up inflation fight in economy tough enough to cope
In other news, Hong Kong leader Carrie Lam appeared to acknowledge frustration with the city’s strict Covid-19 policies.
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Quoteworthy: "The struggle we are waging is a struggle for our sovereignty, for the future of our country and our children." — Russian President Vladimir Putin, on the invasion of Ukraine.

Fed ramps up inflation fight in economy tough enough to cope

The Federal Reserve (Fed) kicked off a campaign of interest rate hikes that is set to be the most aggressive since the mid-2000s, as Chair Jerome Powell assured Americans that the fight against inflation will not tip the US economy into recession.

After raising rates by a quarter point for the first time since 2018 and signalling six more increases this year, Powell told reporters that inflation is too high, the labour market is overheated and price stability is a “precondition” for the central bank as it tackles the hottest price pressures in 40 years.

“As I looked around the table at today’s meeting, I saw a committee that’s acutely aware of the need to return the economy to price stability and determined to use our tools to do exactly that,” Powell told reporters on March 16 following a two-day meeting of the Federal Open Market Committee. “The American economy is very strong and well positioned to handle tighter monetary policy.”

Policy makers voted eight to one to lift their key rate to a target range of 0.25% to 0.5% after two years of holding borrowing costs near zero to insulate the economy from the pandemic.

See also: Global growth to be as weak next year as 2009, IIF forecasts

They forecast a sequence of rate hikes, finishing this year at 1.9% and then to about 2.8% by the end of 2023, which would be considered restrictive to growth. From June 2004 to June 2006, the Fed moved its benchmark up from 1% to 5.25%, tightening at 17 straight meetings.

Seven policy makers want an even faster pace of increases this year, which raises the prospect of a half-point move in future. Indeed, St Louis Fed President James Bullard dissented at this meeting in favour of such a step.

“The Fed has now waged a war on inflation,” said Diane Swonk, chief economist at Grant Thornton. “They want to bring inflation down with the most aggressive surge in rates in decades.”

See also: Keeping the flames of free trade alive

The Fed said that Russia’s invasion of Ukraine posed “highly uncertain” implications for the economy that create near-term upward pressure on inflation while weighing on economic activity.

Still, Powell played down the risk of recession and repeatedly stressed that the economy is “very strong” while emphasising the need for price stability.

In their economic projections, officials laid out a path of slowing inflation and sustained expansion. Notwithstanding the projected rate increases the forecasts showed very little increase in joblessness, which stays around 3.5% for the next three years.

Economists said that sort of happy outcome rarely happens in real life. “The history of being able to guide inflation down from 40-year highs with maximum employment suggests a smooth landing is very difficult to achieve,” said Matthew Luzzetti, chief US economist at Deutsche Bank Securities.

“At some point they will face the trade-off between pushing unemployment higher or accepting higher inflation.” — Bloomberg

Foreign Minister Balakrishnan calls on China to use ‘enormous influence’ on Russia

Singapore’s top diplomat said he hopes China will use its “enormous influence” on Russia to help end its war with Ukraine, warning that Beijing’s decisions in the coming days and weeks could determine the future path of the global economy.

To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section

“The big issue now is what decisions and actions China takes,” Foreign Affairs Minister Vivian Balakrishnan says in an interview. “If you get a deepening of the bifurcation of the global economy, of supply chains, of technology, this will be a very, very different world.”

Singapore last month became the first Southeast Asian nation to say it is imposing unilateral sanctions against Russia for invading

Ukraine, a move Balakrishnan said was necessary due to “the egregiousness of it all.”

Calling the invasion “perhaps even a bigger moment than the fall of the Berlin Wall,” he said China has a greater economic stake than Russia in an “integrated multilateral rules-based world.”

“I hope they will assert their influence with Chinese characteristics, which means quietly and discreetly, but effectively,” Balakrishnan says of President Xi Jinping’s government. “That’s a hope now. Whether this is wishful thinking on my part we’ll see over the next few days and weeks.”

Singapore’s biggest banks have restricted trade financing for Russian raw materials including a halt on issuing so-called letters of credit in US dollars for trades involving oil and liquefied natural gas, according to people with knowledge of the matter. Singapore Airlines has also suspended all return services with Moscow due to operational reasons.

Singapore has rarely imposed sanctions on other countries in the absence of binding United Nations Security Council approval. “We believe we are at an inflection point,” says Balakrishnan. “Little Singapore is standing up for principles and expressing a hope for the rules of engagement for this new era.”

He also dismissed China’s claim that the US is looking to form a NATO-style military alliance in the Indo-Pacific region, saying Southeast Asia is “not looking for one or the other superpower to be a godfather to Southeast Asia.”

Balakrishnan calls it a “strategic error on the part of the United States” to have abandoned talks on the deal that became the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. “Every time I go to Washington I continue to make this point that actually, the best thing you could do would be to return to the TPP (Trans-Pacific Partnership),” he adds. The war in Ukraine will likely result in “a protracted quagmire for the Russians” and “decades of instability.”

Balakrishanan also notes of the increased global defence spending “across the board,” citing Germany’s decision to channel US$113 billion ($153 billion) this year into a fund to modernise the military as a result of Russia’s actions in Ukraine. “I think you’re getting a reversion to the mean, which means that every country needs to make sure, as we do in Singapore, that we have invested enough to be able to defend our own interests.

He adds that he was “pleasantly surprised” with the joint statements by the 10-member Association of Southeast Asian Nations. “You have to understand the diversity in Asean,” he said, adding only two of its members abstained at the UN General Assembly to condemn Russia. “Frankly, even that exceeded my expectations.”

On the continued conflict in Myanmar, Balakrishnan adds that “there needs to be honest-to-goodness political dialogue” between detained civilian leader Aung San Suu Kyi and the military junta that overthrew her government in a coup last year. — Bloomberg

Lam acknowledges frustration, China outbreak eases

Hong Kong leader Carrie Lam appeared to acknowledge frustration with the city’s strict Covid-19 policies, which have kept the financial hub largely isolated from the rest of the world, asking for a few more days before she unveils what could be sweeping changes to the city’s approach next week.

Rising frustration from the public and financial institutions is pushing a review of pandemic control measures in Hong Kong, where a suite of stark containment measures have been in place since January to fight the city’s worst-ever Covid-19 outbreak.

Lam points to the strain on residents and damage to the reputation of the once vibrant Asian financial hub for the revision, asking for a few more days before she unveils what could be sweeping changes to the city’s approach next week.

“I have a very strong feeling that people’s tolerance is fading,” Lam says at a briefing on March 17. “I have a very good feeling that some of our financial institutions are losing patience about this isolated status of Hong Kong,” she adds. “Nobody attaches as much importance as myself to Hong Kong’s international status.”

Lam also signalled a possible reduction in the amount of time new arrivals from abroad must spend in hotel quarantine and said virtually every area of her government’s approach is being scrutinised. — Bloomberg

GoTo Group plans IPO on Indonesia Stock Exchange to raise US$1.1 billion

GoTo Gojek Tokopedia (GoTo Group) — the largest digital ecosystem in Indonesia — announced on March 15 its plan to carry out an initial public offering (IPO) on the Indonesia Stock Exchange (IDX). The IPO is expected to raise proceeds of at least INR15.2 trillion ($1.4 billion).

“This is a landmark moment in the history of our company as we set out on the final stretch towards becoming a publicly owned company on the Indonesia Stock Exchange,” says GoTo Group CEO Andre Soelistyo.

He calls Indonesia one of the largest and most exciting growth markets in the world, as reflected in the resilience its capital market has shown this year, against a backdrop of global market volatility.

“We hope that our IPO will show the world the tremendous opportunity that exists in our country and throughout the Southeast Asia region,” he adds.

GoTo Group combines on-demand, e-commerce and financial services through the Gojek, Tokopedia and GoTo Financial platforms.

The integration of the three businesses under a single ecosystem brings synergies including a hyper local delivery network, cross-platform consumer loyalty capabilities and a broad financial services offering across multiple use cases. This ecosystem contributes to more than 2% of Indonesia’s GDP and its services address nearly two-thirds of the country’s household consumption, GoTo Group claims. — Goola Warden

Cover photo: Bloomberg

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