Author: CensorBiz

Fear swept through financial markets Thursday, and Wall Street tumbled as worries roared back to the fore that the world’s fragile economy may buckle under higher interest rates. 

The S&P 500 fell 3.3% in a widespread wipeout to more than reverse its blip of a 1.5% rally from a day before. Analysts had warned of more big swings given deep uncertainties about whether the Federal Reserve and other central banks can tiptoe the narrow path of hiking interest rates enough to get inflation under control but not so much that they cause a recession. 

The Dow Jones Industrial Average lost 2.4% and was briefly down more than 900 points, while the Nasdaq composite sank 4.1%. It was the sixth loss for the S&P 500 in its last seven tries, and all but 3% of the stocks in the index dropped. 

Wall Street fell with stocks across Europe after central banks there followed up on the Federal Reserve’s big interest-rate hike on Wednesday. The Bank of England raised its key rate for the fifth time since December, though it opted for a more modest increase of 0.25 percentage points than the 0.75-point hammer brought by the Fed. 

Switzerland’s central bank, meanwhile, raised rates for the first time in years, a half-point hike. Taiwan’s central bank raised its key rate by an eighth of a point. Japan’s central bank began a two-day meeting, though it has held out on raising rates and making other economy-slowing moves that investors call “hawkish.” 

Such moves and expectations for plenty more have sent investments tumbling this year, from bonds to bitcoin. Higher interest rates slow the economy by design, in hopes of stamping out inflation. But they’re a blunt tool that can choke off the economy if used too aggressively. 

“Another concern is that with the change in policy, there’s been weakening economic data already,” said Bill Northey, senior investment director at U.S. Bank Wealth Management. “That raises the odds of a recession in the latter part of 2022 into 2023.” 

The worries dragged the S&P 500 into a bear market earlier this week, meaning it had dropped more than 20% from its peak. It’s now 23.6% below its record set early this year and back to where it was in late 2020. That effectively erases 2021, which was one of the best years for Wall Street since the turn of the millennium. 

The S&P 500 fell 123.22 points to 3,666.77. The Dow lost 741.46 to 29,927.07, and the Nasdaq dropped 453.06 to 10,646.10. Thursday’s biggest losses hit the stocks of the smallest companies, a signal of pessimism about the economy’s strength. The Russell 2000 index of smaller stocks sank 81.30, or 4.7%, to 1,649.84. 

Not only is the Federal Reserve hiking short-term rates, it also this month began allowing some of the trillions of dollars of bonds it purchased through the pandemic to roll off its balance sheet. That should put upward pressure on longer-term interest rates. It’s another way central banks have been ripping away supports they earlier propped underneath markets to juice the economy. 

The U.S. economy is still holding up, driven in particular by a strong jobs market. Fewer workers filed for unemployment benefits last week than a week before, a report showed on Thursday. But more signs of trouble have been emerging. 

On Thursday, one report showed homebuilders broke ground on fewer homes last month. Rising mortgage rates resulting directly from the Fed’s moves are digging into the industry. A separate reading on manufacturing in the mid-Atlantic region also unexpectedly fell. 

“Corporate earnings estimates have not yet changed to reflect some of the softening economic data and that could lead to the second leg of this repricing,” Northey said. 

Treasury yields swung sharply on Thursday, with the 10-year yield down to 3.23% from 3.39% late Wednesday. It had climbed as high as 3.48% in the morning, near its highest level since 2011. 

Higher rates have been delivering the hardest hits this year to the investments that soared the most through the easy, ultralow rates of earlier in the pandemic, which now look to be among the most expensive and risky investments. That includes bitcoin and high-growth technology stocks. 

Big Tech stocks were among the heaviest weights on the market Thursday, but the sharpest losses hit stocks whose profits depend more on the strength of the economy and whether customers can keep up their purchases amid the highest inflation in decades. 

Cruise operators Norwegian Cruise Line Holdings, Royal Caribbean Group and Carnival all lost more than 11%. 

It’s all a sharp turnaround from a day earlier, when stocks rallied immediately after the Fed’s biggest hike to rates since 1994. Analysts said investors seemed to latch onto a comment from Fed Chair Jerome Powell, who said mega-hikes of three-quarters of a percentage point would not be common. 

Powell said Wednesday the Fed is moving “expeditiously” to get rates closer to normal levels after last week’s stunning report that showed inflation at the consumer level unexpectedly accelerated last month, which dashed hopes that inflation may have already peaked. 

The Fed is “not trying to induce a recession now, let’s be clear about that,” Powell said. He called Wednesday’s big increase “front-end loading.” 

 
…

President Joe Biden told The Associated Press on Thursday that the American people are “really, really down” after a tumultuous two years with the coronavirus pandemic, volatility in the economy and now surging gasoline prices that are slamming family budgets.

He said a recession is not inevitable and bristled at claims by Republican lawmakers that last year’s COVID-19 aid plan was fully to blame for inflation reaching a 40-year high, calling that argument bizarre.

As for the overall American mindset, Biden said, “People are really, really down.”

“They’re really down,” he said. “The need for mental health in America, it has skyrocketed, because people have seen everything upset. Everything they’ve counted on upset. But most of it’s the consequence of what’s happened, what happened as a consequence of the COVID crisis.”

Speaking to the AP in a 30-minute Oval Office interview, Biden addressed the warnings by economists that the United States could be headed for a recession.

“First of all, it’s not inevitable,” he said. “Secondly, we’re in a stronger position than any nation in the world to overcome this inflation.”

As for the causes of inflation, Biden flashed some defensiveness on that count.

“If it’s my fault, why is it the case in every other major industrial country in the world that inflation is higher? You ask yourself that? I’m not being a wise guy,” he said.

The president said he saw reason for optimism with the 3.6% unemployment rate and America’s relative strength in the world.

“Be confident, because I am confident we’re better positioned than any country in the world to own the second quarter of the 21st century,” Biden said. “That’s not hyperbole, that’s a fact.”

Biden’s bleak assessment of the national psyche comes as voters have soured on his job performance and the direction of the country. Only 39% of U.S. adults approve of Biden’s performance as president, according to a May poll from The Associated Press-NORC Center for Public Research, dipping from negative ratings a month earlier.

The president outlined some of the hard choices he has faced, saying the U.S. needed to stand up to Russian President Vladimir Putin for invading Ukraine in February even though tough sanctions imposed as a result of that war have helped caused gas prices to surge, creating a political risk for Biden in an election year. He called on oil companies to think of the world’s short-term needs and increase production.

Asked why he ordered the financial penalties against Moscow that have helped disrupt food and energy markets globally, Biden said he made his calculation as commander in chief rather than as a politician thinking about the election.

“I’m the president of the United States,” he said. “It’s what’s best in the country. No kidding. No kidding. So what happens? What happens if the strongest power in NATO, the organizational structure we put together, walked away from Russian aggression?”

Biden talked about the possibility of chaos in Europe if an unimpeded Russia kept moving deeper into the continent, China was emboldened to take over Taiwan and North Korea grew even more aggressive with its nuclear weapon ambitions.

Biden renewed his contention that major oil companies have benefited from higher prices without increasing production as much as they should. He said the companies needed to think of the world in the short term, not just their investors.
…

Amid a major stock market downturn, sharply rising inflation, and plummeting consumer confidence, the Federal Reserve Board interest rate-setting body decided Wednesday to raise interest rates by three-quarters of 1% in the hope of taming runaway prices.

The decision by the Federal Open Market Committee (FOMC) to increase the target for the federal funds rate to between 1.5% and 1.75% marked the largest single-day increase since 1994. The move illustrates the grave concern among policymakers about inflation, which rose at an annual rate of 8.6% last month, a 40-year high.

In remarks delivered at a press conference after the FOMC meeting, Federal Reserve Board Chair Jerome Powell indicated that more rate hikes are on the horizon, with another a half- or three-quarter-point increase likely in July, and other increases in three further meetings before the end of the year.

“My colleagues and I are acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing and transportation,” Powell said, adding that the Fed is “strongly committed to returning inflation to our 2% objective.”

Trying to cool demand

Inflation drives up the cost of most items people buy on a regular basis, from gasoline to food to clothing. It can also drive up prices on big-ticket items, such as cars, appliances and furniture.

The strategy behind the Fed’s interest rate increases is to cool demand, which can help lower prices.

As interest rates increase, consumers become less likely to borrow money to make large purchases like cars and homes. In recent weeks, for example, the interest rate for a 30-year home mortgage loan in the U.S., which was under 5% in March, has spiked to above 6.7%. It also affects decisions by business owners to make new investments.

The central bank’s task is to cool demand enough to bring inflation back down to its target rate of 2% per year without pushing too far and causing a recession, which could lead to job losses and more economic pain.

‘Behind the curve’

Until last week, the assumption had been that the central bank would raise rates by half a point in this meeting, with other half-point increases in the pipeline later in the year. However, last week’s consumer price index report from the Bureau of Labor Statistics showed that rather than flattening out as expected, inflation had risen, from an 8.3% annualized pace to 8.6%.

The surprise report increased pressure on the central bank, which has been criticized for waiting too long to address rising prices, to take more dramatic action.

“The Fed is behind the curve on inflation and it knows it,” Greg McBride, senior vice president and chief financial analyst for Bankrate.com, told VOA. “Given the ugly inflation report from last week,” he said, a half-point increase would have felt insufficient.

The Fed tries hard not to surprise the financial markets and prefers to signal its rate changes well in advance through “forward guidance” that lets market participants know what to expect.

In his remarks Wednesday, Powell stressed that the circumstances under which the Fed took its decisions on rates was very uncommon, with the Labor Department’s surprising inflation data coming just days before the FOMC was set to meet.

Strong economy

During his remarks, Powell several times stressed that while inflation is high and consumer sentiment is low, the underlying U.S. economy is still strong, with demand for goods and services remaining high.

“We’re not seeing a broad slowdown,” he said. “We see job growth slowing, but it’s still at quite robust levels. We see the economy slowing a bit, but still, healthy growth levels.”

The Fed chair pushed back against concerns that higher interest rates could damage the economy, pointing out that while rates are rising, they are doing so from a historically low starting point — the Fed held rates at near zero through much of the pandemic and of the last decade.

“There’s a lot going on,” Powell said. “There are a lot of flows back and forth, but ultimately, it does appear that the U.S. economy is in a strong position, and well-positioned to deal with higher interest rates.”

Unemployment increase expected

As part of the post-FOMC meeting presentation, the Fed released its Summary of Economic Projections, which contains the committee members’ expectations about a number of economic indicators over the coming years, one of which is the unemployment level.

Employment levels in the U.S. have been one of the major success stories of the pandemic recovery. After spiking to a post-World War II high of 14.7% in April 2020, the jobless rate in the U.S. began to plummet and hit 3.6% in May, just one-tenth of a percent above the level in the months before the pandemic.

Looking forward, though, the members of the FOMC expect that the U.S. unemployment rate will begin rising as interest rates rise, perhaps to above 4% by 2024, with inflation rates down to 2%.

“A 4.1% unemployment rate, with inflation well on its way to 2%, I think that would be a successful outcome,” Powell said.

“We don’t seek to put people out of work,” he added. “Of course, we never think too many people are working and fewer people need to have jobs. But we also think that you really cannot have the kind of labor market we want without price stability.”

Recession worries remain

In their efforts to tame inflation, Powell and his colleagues at the Fed have been aiming for what economists characterize as a “soft landing.” That is, a cooling of demand that slows price rises but does not reverse economic growth and push the country into a recession.

Asked about the likelihood of a soft landing on Tuesday, Powell said, “That is our objective, and I do think it’s possible.”

However, he said that events such as supply shocks caused by Russia’s invasion of Ukraine and pandemic-related lockdowns in major Chinese manufacturing hubs make predictions difficult.

“Events of the last few months have raised the degree of difficulty and created great challenges,” he said, adding, “There’s a much bigger chance now that it will depend on factors that we don’t control.”

Despite the Fed chair’s assessment that it remains possible to avoid a recession, others said they were not convinced that getting back to 2% inflation by 2024 is possible any other way.

“It’s hard to see how we get to that level without a recession,” Bankrate’s McBride told VOA.
…

The U.S. Federal Reserve announced Wednesday it would raise interest rates by the largest amount in nearly 30 years in an effort to cool inflation without tipping the economy into a recession. 

The central bank said it would raise its key interest rate by three-quarters of a percentage point, the largest amount since November 1994, and signaled more hikes to come. 

The rate increase comes as inflation, which measures the price of common goods such as food and fuel, rose by 8.6% over the 12 months ending in May — the highest rate in 40 years — driven by high post-pandemic demand for homes, cars, travel and other goods and services, global supply chain problems, strict COVID-19 lockdowns in China, and Russia’s invasion of Ukraine. 

In a statement announcing the rate hike, the Federal Open Market Committee, the Federal Reserve’s policy-setting board, said it remains “strongly committed to returning inflation to its 2% objective.” 

The three-quarter-point rate increase exceeds the one-half-point rate increase that Federal Reserve Chairman Jerome Powell had previously suggested would be imposed.  

He told reporters Wednesday that the latest information showed higher inflation than expected. 

“We thought strong action was warranted at this meeting,” he said, “and we delivered that.”

Shortly after the Fed’s announcement, Powell said if inflation shows no sign of abating, the central bank would likely impose either a half- or three-quarter-point increase at its next meeting in July.   

Some information for this report came from The Associated Press, Reuters and Agence France-Presse.  

 
…

President Joe Biden on Wednesday called on U.S. oil refiners to produce more gasoline and diesel, saying their profits have tripled during a time of war between Russia and Ukraine as Americans struggle with record high prices at the pump.

“The crunch that families are facing deserves immediate action,” Biden wrote in a letter to seven oil refiners. “Your companies need to work with my Administration to bring forward concrete, near-term solutions that address the crisis.”

Gas prices nationwide are averaging roughly $5 a gallon, an economic burden for many Americans and a political threat for the president’s fellow Democrats going into the midterm elections. Broader inflation began to rise last year as the U.S. economy recovered from the coronavirus pandemic, but it accelerated in recent months as energy and food prices climbed after Russia invaded Ukraine in February and disrupted global commodity markets.

The government reported on Friday that consumer prices had jumped 8.6% from a year ago, the worst increase in more than 40 years.

The letter notes that gas prices were averaging $4.25 a gallon when oil was last near the current price of $120 a barrel in March. That 75-cent difference in average gas prices in a matter of just a few months reflects both a shortage of refinery capacity and profits that “are currently at their highest levels ever recorded,” the letter states.

As Biden sees it, refineries are capitalizing on the uncertainties caused by “a time of war.” His message that corporate greed is contributing to higher prices has been controversial among many economists, yet the claim may have some resonance with voters.

Some liberal lawmakers have proposed cracking down on corporate profits amid the higher inflation. Sen. Bernie Sanders, a Vermont independent, in March proposed a 95% tax on profits in excess of companies’ pre-pandemic averages.

The president has harshly criticized what he views as profiteering amid a global crisis that could potentially push Europe and other parts of the world into a recession, saying after a speech Friday that ExxonMobil “made more money than God this year.” ExxonMobil responded by saying it has already informed the administration of its planned investments to increase oil production and refining capacity.

“There is no question that [Russian President] Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing,” Biden’s letter says. “But amid a war that has raised gasoline prices more than $1.70 per gallon, historically high refinery profit margins are worsening that pain.”

The letter says the administration is ready to “use all reasonable and appropriate Federal Government tools and emergency authorities to increase refinery capacity and output in the near term, and to ensure that every region of this country is appropriately supplied.” It notes that Biden has already released oil from the U.S. strategic reserve and increased ethanol blending standards, though neither action put a lasting downward pressure on prices.

The president is sending the letter to Marathon Petroleum, Valero Energy, ExxonMobil, Phillips 66, Chevron, BP and Shell.

He also has directed Energy Secretary Jennifer Granholm to convene an emergency meeting and consult with the National Petroleum Council, a federal advisory group that is drawn from the energy sector.

Biden is asking each company to explain to Granholm any drop in refining capacity since 2020, when the pandemic began. He also wants the companies to provide “any concrete ideas that would address the immediate inventory, price, and refining capacity issues in the coming months — including transportation measures to get refined product to market.”

There may be limits on how much more capacity can be added. The U.S. Energy Information Administration on Friday released estimates that “refinery utilization will reach a monthly average level of 96% twice this summer, near the upper limits of what refiners can consistently maintain.”

The letter says that roughly 3 million barrels a day of refining capacity around the world have gone offline since the pandemic began. In the U.S., refining capacity fell by more than 800,000 barrels a day in 2020.
…

Wall Street is back in the claws of a bear market as worries about inflation and higher interest rates overwhelm investors. 

The Federal Reserve has signaled it will aggressively raise interest rates to try to control inflation, which is the highest in decades. Throw in the war in Ukraine and a slowdown in China’s economy, and investors have been forced to reconsider what they’re willing to pay for a wide range of stocks, from high-flying tech companies to traditional automakers. Big swings have become commonplace and Monday was no exception. 

The last bear market happened just two years ago, but this is still a first for those investors who got their start trading on their phones during the pandemic. Thanks in large part to extraordinary actions by the Federal Reserve, stocks have for years seemed to go largely in only one direction: up. But the “buy the dip” rallying cry popular after every market slide has grown more fainter — a recent rebound in stock prices was wiped out by a furious bout of selling over the past four days. 

Here are some common questions asked about bear markets 

Why is it called a Bear Market?

A bear market is a term used by Wall Street when an index like the S&P 500, the Dow Jones Industrial Average, or even an individual stock, has fallen 20% or more from a recent high for a sustained period of time. 

Why use a bear to represent a market slump? Bears hibernate, so bears represent a market that’s retreating, said Sam Stovall, chief investment strategist at CFRA. In contrast, Wall Street’s nickname for a surging stock market is a bull market, because bulls charge, Stovall said. 

The S&P 500, Wall Street’s main barometer of health, slid 3.9% Monday to 3,749. That’s nearly 22% below the high set on Jan. 3. The Nasdaq is already in a bear market, down 32.7% from its peak of 16,057.44 on Nov. 19. The Dow Jones Industrial Average is more than 17% below its most-recent peak. 

The most recent bear market for the S&P 500 ran from February 19, 2020, through March 23, 2020. The index fell 34% in that one-month period. It’s the shortest bear market ever. 

What’s bothering investors?

Market enemy No. 1 is interest rates, which are rising quickly as a result of the high inflation battering the economy. Low rates act like steroids for stocks and other investments, and Wall Street is now going through withdrawal. 

The Federal Reserve has made an aggressive pivot away from propping up financial markets and the economy with record-low rates and is focused on fighting inflation. The central bank has already raised its key short-term interest rate from its record low near zero, which had encouraged investors to move their money into riskier assets such as stocks or cryptocurrencies to get better returns. 

Last month, the Fed signaled additional rate increases of double the usual amount are likely in upcoming months. Consumer prices are at the highest level in four decades and rose 8.6% in May compared with a year ago. 

The moves by design will slow the economy by making it more expensive to borrow. The risk is the Fed could cause a recession if it raises rates too high or too quickly. 

Russia’s war in Ukraine has also put upward pressure on inflation by pushing up commodities prices. And worries about China’s economy, the world’s second largest, have added to the gloom. 

So, we just need to avoid a recession?

Even if the Fed can pull off the delicate task of tamping down inflation without triggering a downturn, higher interest rates still put downward pressure on stocks. 

If customers are paying more to borrow money, they can’t buy as much stuff, so less revenue flows to a company’s bottom line. Stocks tend to track profits over time. Higher rates also make investors less willing to pay elevated prices for stocks, which are riskier than bonds, when bonds are suddenly paying more in interest thanks to the Fed. 

Critics said the overall stock market came into the year looking pricey versus history. Big technology stocks and other winners of the pandemic were seen as the most expensive, and those stocks have been the most punished as rates have risen. But the pain is spreading widely, with retailers signaling a shift in consumer behavior. 

Stocks have declined almost 35% on average when a bear market coincides with a recession, compared with a nearly 24% drop when the economy avoids a recession, according to Ryan Detrick, chief market strategist at LPL Financial. 

So I should sell everything now, right?

If you need the money now or want to lock in the losses, yes. Otherwise, many advisers suggest riding through the ups and downs while remembering the swings are the price of admission for the stronger returns that stocks have provided over the long term. 

While dumping stocks would stop the bleeding, it would also prevent potential gains. Many of the best days for Wall Street have occurred either during a bear market or just after the end of one. That includes two separate days in the middle of the 2007-2009 bear market where the S&P 500 surged roughly 11%, as well as leaps of better than 9% during and shortly after the roughly monthlong 2020 bear market. 

Advisers suggest putting money into stocks only if it won’t be needed for several years. The S&P 500 has come back from every one of its prior bear markets to eventually rise to another all-time high. 

The down decade for the stock market following the 2000 bursting of the dot-com bubble was a notoriously brutal stretch, but stocks have often been able to regain their highs within a few years. 

How long do bear markets last and how deep do they go?

On average, bear markets have taken 13 months to go from peak to trough and 27 months to get back to break even since World War II. The S&P 500 index has fallen an average of 33% during bear markets in that time. The biggest decline since 1945 occurred in the 2007-2009 bear market when the S&P 500 fell 57%. 

History shows that the faster an index enters into a bear market, the shallower they tend to be. Historically, stocks have taken 251 days (8.3 months) to fall into a bear market. When the S&P 500 has fallen 20% at a faster clip, the index has averaged a loss of 28%. 

The longest bear market lasted 61 months and ended in March 1942 and cut the index by 60%. 

How do we know when a bear market has ended?

Generally, investors look for a 20% gain from a low point as well as sustained gains over at least a six-month period. It took less than three weeks for stocks to rise 20% from their low in March 2020.
…

U.S. Federal Reserve officials, beset by ongoing high inflation and a weakening growth picture, will lay out on Wednesday how they think their increasingly difficult goal of cooling the economy without sending it into a tailspin may play out in the months ahead.

That thorny predicament will be on display as Fed policymakers are expected to deliver their second half-percentage-point interest rate hike in a row and issue their latest projections through 2024 and beyond for economic growth, unemployment and inflation. As critically, they will signal the speed and scale of rate rises policymakers believe are needed to quash inflation at a 40-year-high.

What is certain is their forecasts are likely to bear little resemblance to those issued in March, which showed inflation going down without a rise in unemployment or policy being particularly restrictive.

The meeting comes two weeks after Fed Chair Jerome Powell and U.S. President Joe Biden met amid rising anxiety at the White House that a plentiful jobs picture is being drowned out by soaring costs for everything from rent and food to gasoline and airline tickets. 

Powell has previously said the central bank, which in March lifted interest rates for the first time in three years, will keep raising them until price increases ease in a “clear and convincing” way. Policymakers already signaled they plan to match this week’s expected rate increase with another half-point hike at their next meeting in July, bringing borrowing costs up to between 1.75% and 2.0% – right where just three months ago they thought they would be at year-end.

A hotter-than-expected inflation reading last Friday has even thrown some doubt on those expectations with economists at Barclays calling for a three-quarter-point move either this week or in July and Fed funds futures contracts now reflect better-than-even odds of a 75-basis-point rate hike by July, with a one-in-four chance of that occurring next week.

“It’s going to be a tricky meeting messaging-wise,” said Julia Coronado, a former Fed economist and president of MacroPolicy Perspectives. “It’s not a rosy outlook. They don’t have any easy choices to make.”

New forecasts, new questions

U.S. consumer price growth accelerated in May to 1.0% as gasoline prices hit a record high and the cost of services rose further, while core prices climbed 0.6% after advancing by the same margin in April, the Labor Department reported on Friday, underscoring the need for the Fed to keep its foot on the brakes. In the 12 months through May, headline inflation rose to 8.6%.

The new set of policymaker projections is set to reflect a faster pace of hikes, slower growth, higher inflation and a higher unemployment rate. The key will be how much for each.

All policymakers are now agreed the Fed needs to get its policy rate up to neutral – the level that neither stimulates nor constrains economic growth – by the end of this year. That rate is seen roughly between 2.4% and 3%.

The median dot for the end of 2022 could easily rise enough to signal at least another half-point increase in September given Friday’s worse-than-expected inflation reading. How far the Fed will have to raise rates overall will also move up, with most economists seeing them topping out between 3% and 3.5%.

For the unemployment rate over the next two years, the key is whether policymakers raise it by just a notch or two or show a material rise in layoffs, which would be at odds with their contention that inflation can be tamed without excessive joblessness.

Fed Governor Christopher Waller recently said if the Fed could bring down inflation to near its 2% goal while keeping the unemployment rate, currently at 3.6%, from rising above 4.25%, it would be a “masterful” performance.

“I don’t think it will change a lot but if it does … that’s a sign they’re worried about the possibility of a serious slowdown or recession,” said Roberto Perli, also a former Fed economist and head of global policy at Piper Sandler.

How much pain the Fed’s willing to swallow

Some of the factors keeping inflation so elevated, in particular supply shocks outside the Fed’s control due to Russia’s invasion of Ukraine that have caused a jump in food and oil prices, show no sign of abating. Overall the central bank still faces tremendous uncertainty on the outlook from that and other supply-chain disruptions caused by the COVID-19 pandemic.

Nor are officials getting much help yet on the demand side with the healthy finances of U.S. banks, companies and households a possible obstacle to curbing inflation as they raise rates in an economy able so far to pay the price.

The longer the Fed struggles to stifle demand and the longer inflation persists, the more likely the rate of price increases becomes embedded and the Fed needs to ramp up its action, reducing the chances of Powell’s hope for what he calls a “softish” landing.

Newly sworn-in Fed governors Philip Jefferson and Lisa Cook, who take their place among the 18-strong policymaking body for the first time, are unlikely to diverge from their colleagues’ resolve to lower inflation.

“While Cook and Jefferson are expected to be dovish additions to the Fed, that won’t matter much while inflation is 8%, and we doubt they will push back on the Fed’s tightening plans any time soon,” said Andrew Hunter, senior U.S. economist at Capital Economics.

If the committee consensus does not align with Powell’s view of what is needed, he has shown by his recent inter-meeting guidance that he is prepared to lead from the front to make sure inflation is decisively dented.

David Wilcox, a former Fed research director now director of U.S. economic research at Bloomberg Economics and a senior fellow at the Peterson Institute for International Economics, expects Powell to maintain a razor-sharp focus on the inflation side of the Fed’s mandate like Paul Volcker, the towering Fed chief who tamed inflation in the 1980s. 

“Powell has every intention of going down in history, if necessary, as Paul Volcker version 2.0,” said Wilcox. 
…

Legislation that Britain will unilaterally bring forward on Monday to scrap some of the rules that govern post-Brexit trade with Northern Ireland will not break international law, minister Brandon Lewis said on Sunday.

“The legislation that we will outline tomorrow is within the law; what we are going to do is lawful and it is correct,” the Northern Ireland Secretary told Sky News.

When Britain left the EU, Prime Minister Boris Johnson agreed a protocol that effectively left Northern Ireland in the EU’s single market and customs union to preserve the open border with Ireland specified in the Good Friday peace agreement.

Any unilateral move by London to override the treaty will inflame a simmering argument with the European Union.

Ireland’s Sinn Fein, the nationalist party that won a historic victory in the Northern Ireland Assembly election last month, said on Sunday Britain would “undoubtedly” break the law by imposing unilateral changes to the protocol.

Lewis said however the protocol needed to be changed because it was “fundamentally undermining” the Good Friday agreement.

He said it was disrupting the lives of people in Northern Ireland, was stopping government institutions functioning, and was not respecting the UK’s own internal market. 

Lewis declined to say how the protocol would be changed, but said the government would set out the legal basis on which it was bringing forward the legislation.

Sinn Fein president Mary Lou McDonald said London could work with Dublin and Brussels to improve the application of the protocol.

“There is a willingness here, there is a willingness to engage by the European Commission, but the British government has refused to engage,” she told Sky News from Dublin.

“It has not been constructive, it has sought a destructive path, and is now proposing to introduce legislation that will undoubtedly breach international law.”
…

The World Trade Organization chief voiced cautious optimism Sunday as global trade ministers gather to tackle food security threatened by Russia’s invasion of Ukraine, overfishing and equitable access to COVID vaccines.

Speaking just hours before the opening of the WTO’s first ministerial meeting in nearly five years, Ngozi Okonjo-Iweala acknowledged that “the road will be bumpy and rocky, there may be a few landmines on the way.”

But she told journalists she was “cautiously optimistic that we’ll get one or two deliverables,” adding she would consider that “a success.”

With its first ministerial meeting in years, the WTO faces pressure to finally eke out long-sought trade deals and show unity amid the still raging pandemic and an impending global hunger crisis.

Top of the agenda as the four-day meeting kicks off is the toll Russia’s war in Ukraine, traditionally a breadbasket that feeds hundreds of millions of people, is having on food security.

EU trade commissioner Valdis Dombrovskis said the bloc had been “working hard with all the members to prepare a multilateral food security package,” and slammed Russia for “using food and grain as a weapon of war.”

The WTO is hoping to keep criticism of Russia’s war in Ukraine to the first day of talks, when many of the more than 100 ministers due to attend are expected to issue blistering statements.

But with many flatly refusing to negotiate directly with Moscow, there are fears this could bleed into the following days, when the WTO wants to focus on nailing down elusive trade deals.

“There is a real risk that things could go off the rails next week,” a Geneva-based diplomatic source said.

Fisheries deal in sight?

The tensions have not curbed Okonjo-Iweala’s zeal to press for agreements on a range of issues during the first ministerial gathering on her watch, especially as the global trade body strives to prove its worth after nearly a decade with no new large trade deals.

There is cautious optimism that countries could finally agree on banning subsidies that contribute to illegal and unregulated fishing, after more than 20 years of negotiations.

The WTO says talks have never been this close to the finish line, but diplomats remain cautious.

The negotiations “have made progress recently, but these remain difficult subjects,” a diplomatic source in Geneva told AFP.

One of the main sticking points has been so-called special and differential treatment (SDT) for developing countries, like major fishing nation India, which can request exemptions.

A draft text sent to the ministers for review proposes exemptions should not apply to member states accounting for an as yet undefined share of the global volume of fishing.

The duration of exemptions also remains undefined.

Environmental groups say anything beyond 10 years would be catastrophic. India has demanded a 25-year exemption.

India ‘creating problems’

“Twenty-five years is an unreasonable length of time,” Isabel Jarrett, head of the Pew Charitable Trusts’ project to end harmful fisheries subsidies, told AFP, warning so much leeway would be “devastating for fish stocks.”

Colombian Ambassador Santiago Wills, who chairs the WTO fisheries subsidies negotiations, stressed the urgency of securing a deal.

“The longer we wait, the more the fish lose. And the more the fish lose, the more we all lose,” he said in a statement Saturday.

India however appears to be stubbornly sticking to its demands on fisheries and in other areas, jeopardizing the chances of reaching deals since WTO agreements require full consensus backing.

“There is not a single issue that India is not blocking,” a Geneva-based ambassador said, singling out WTO reform and agriculture.

A source with knowledge of the negotiations towards a text on food security also said “the Indians are still creating problems.”

Elvire Fabry, a senior research fellow at the Jacques Delors Institute, said India had appeared eager to “throw more weight around” in international organisations, warning New Delhi was capable of scuppering talks.

Patent waiver?

The ministers are also set to seek a joint WTO response to the pandemic, although significant obstacles remain.

Back in October 2020, India and South Africa called for intellectual property rights on Covid-19 vaccines and other pandemic responses to be suspended in a bid to ensure more equitable access in poorer nations.

After multiple rounds of talks, the European Union, the United States, India and South Africa hammered out a compromise that has become the basis for a draft text sent to ministers.

The text, which would allow most developing countries, although not China, to produce COVID vaccines without authorization from patent holders, is still facing opposition from both sides.

Britain and Switzerland are reluctant to sign up, arguing along with the pharmaceutical industry that the waiver would undermine investment in innovation.

Public interest groups meanwhile say the text falls far short of what is needed by covering only vaccines and not Covid treatments and diagnostics.

“The negotiations are still aeons away from ensuring access to lifesaving COVID medical tools for everyone, everywhere,” medical charity Doctors Without Borders warned.
…

The World Trade Organization is facing one of its most dire moments, the culmination of years of slide toward oblivion and ineffectiveness. Now may be a chance to turn the tide and reemerge as a champion of free and fair trade — or face a future further in doubt.

For the first time in 4½ years, after a pandemic pause, government ministers from WTO countries will gather for four days starting Sunday to tackle issues like overfishing of the seas, COVID-19 vaccines for the developing world and food security at a time when Russia’s war in Ukraine has blocked the export of millions of tons of Ukrainian grain to developing nations.

Facing a key test of her diplomatic skill since taking the job 15 months ago, WTO Director-General Ngozi Okonjo-Iweala in recent days expressed “cautious optimism” that progress could be made on at least one of four issues expected to dominate the meeting: fisheries subsidies, agriculture, the pandemic response and reform of the organization, spokesman Fernando Puchol said.

Diplomats and trade teams have been working “flat out — long, long hours” to serve up at least one “clean text” for a possible agreement — that ministers can simply rubber-stamp and not have to negotiate — on one of those issues, Puchol told reporters Friday.

“It’s difficult to predict a result right now,” he said.

The Geneva-based body, barely a quarter-century old, brings together 164 countries to help ensure smooth and fair international trade and settle trade disputes. Some outside experts expect few accomplishments out of the meeting, saying the main one may simply be getting the ministers to the table.

“The multilateral trading system is in a bad way. The Ukraine situation is not helping,” said Clemens Boonekamp, an independent trade policy analyst and former head of WTO’s agricultural division. “But the mere fact that they are coming together is a sign of respect for the system.”

Alan Wolff, a former WTO deputy director-general, sounded optimistic that members could make at least some headway.

They might reach an agreement, he said, to help relieve a looming global food crisis arising from the war in Ukraine by ensuring the U.N. World Food Program receives a waiver from food export bans imposed by WTO countries eager to feed their own people.

Wolff, now senior fellow at the Peterson Institute for International Economics in Washington, expressed confidence in Okonjo-Iweala, saying, “I’m not willing to sell her short.”

He said members “seem to be making progress” on an agreement to scale back subsidies that encourage overfishing — something they have been trying to do for more than two decades.

“Do they wrap it up this time?” Wolff asked. “Unclear. It’s been a drama.”

One problem — among many — is that the WTO operates by consensus, so any one of its 164 member countries could gum up the works.

In short, the WTO has become an important diplomatic battleground between developed and developing countries, and some experts say reform is needed if it’s ever to get things done.

The trade body, created in 1995 as a successor to the General Agreement on Tariffs and Trade, has seen a slow unraveling. It hasn’t produced a major trade deal in years. The last big success was a 2014 agreement billed as a boost to lower-income countries that cut red tape on goods clearing borders.

Years ago, the United States started clamping down on the WTO’s appeals court, which in theory delivers the last word on trade disputes, such as a high-profile one between the U.S. and EU involving plane-making giants Airbus and Boeing.

Then, U.S. President Donald Trump came along, threatening to pull America out of the WTO over his insistence that it was unfair to the U.S. In the end, he didn’t, and simply bypassed the WTO — slapping sanctions on allies and foes alike and ignoring the trade organization’s rulebook and dispute-resolution system.

Once a champion of the WTO, the United States has rued the admission of China and insists Beijing has been violating the trade body’s rules too much. The U.S. accuses China of excessively supporting state-run companies and impeding free trade, among other things. China denies those allegations.

A generation ago, the WTO drew huge, vituperative, even violent protests — notably from anti-globalists and anarchists who detested its closed-door secrecy and elites-decide-all image.

William Reinsch, a former U.S. trade official, warned that the WTO is now in danger of becoming irrelevant. The best way to show that it still matters, he wrote this month, is to negotiate an agreement, perhaps on fisheries, COVID-19 vaccines or a more difficult issue: encouraging more free trade in farming.

Reinsch, now at the Center for Strategic and International Studies in Washington, said the United States needs to be doing more — including making compromises — to ensure the WTO can reach agreement on contentious issues.

“The future of the WTO is at risk,” he said. “Failure would be bad for the fish and the farmers, but it would also be bad for a rule-of-law-based global economy.”
…

U.S. President Joe Biden said his administration is doing all it can to tackle inflation, placing blame for rising prices on oil and shipping companies, as new data show consumer prices have reached a four-decade high.

During a speech at the Port of Los Angeles on Friday, Biden said that oil companies are deliberately not increasing production to keep prices high.

He said oil companies “had 9,000 permits to drill. They are not drilling. Why aren’t they drilling?”

“Because they make money not producing more oil,” the president said.

Asked about Exxon’s profits, Biden said, “Exxon made more money than God this year.”

The president also criticized oil companies for spending billions to buy back the stock of their own companies and said the practice should be taxed.

Exxon objected to several of the president’s accusations.

Brian Deese, Biden’s chief economic adviser, met with the chief executives of Exxon and Chevron this week at the companies’ request, two people familiar with the matter told CNBC. Those discussions included prices, production and market conditions.

Exxon also said it plans a 50% increase in capital expenditures in the petroleum-rich Permian Basin in 2022 compared with 2021 and is boosting refining capacity for U.S. light crude oil to process about 250,000 barrels more per day, CNBC reported.

Labor Department data Friday showed that consumer prices rose 8.6% in May from the previous year. The cost of gas was up nearly 50% in one year, and groceries rose nearly 12% in that timeframe, the biggest such increase since 1979.

Biden said Friday that the major Asian shipping companies have increased their prices by as much as 1,000%. He called on Congress to consider taking action against them.

The president also repeated his view that inflation is being caused in part by Russian President Vladimir Putin’s war in Ukraine.

“We’ve never seen anything like Putin’s tax on both food and gas,” he said.

Biden touted his administration’s efforts to move cargo in and out of the Port of Los Angeles, which faced severe bottlenecks last year. However, while the number of ships waiting to enter the port for long periods of time has fallen by about 40%, according to the White House, inflation has not dropped.

The president is facing criticism from Republican lawmakers over his inability to stop prices from rising and is seeing decreasing support from voters. Two-thirds of Americans disapprove of Biden’s handling of the economy, according to a May poll from The Associated Press and NORC Center for Public Research.

The president argued Monday that the entire world is facing rising inflation and said, “America can tackle inflation from a position of strength.” He noted the country has a strong job market and an unemployment rate near historic lows.

During his speech Friday, Biden also addressed the January 6 attack on the U.S. Capitol after Thursday night’s first televised congressional hearing on the attack.

While Biden said he did not watch the hearing, he said the attack was “one of the darkest chapters in our nation’s history,” and said it is important the American public understands what truly happened. The hearings are scheduled to continue next week.

VOA’s Megan Duzor and The Associated Press contributed to this report.
…

An internet rumor blazed through the country that desperate people were selling their toes for cash. The false report became so widespread that the country’s Deputy Minister of Information Kindness Paradza visited street vendors in central Harare earlier this month to debunk it.

One-by-one the traders took off their shoes to show that they had all 10 toes, as Zimbabwe’s state media recorded the digital investigation.

Paradza declared the toes-for-money story a hoax, as did local and foreign fact-checkers. Police later arrested a street vendor who now faces a fine or 6 months in jail on charges of criminal nuisance for allegedly starting the story.

It’s starkly true, however, that Zimbabweans are finding it increasingly difficult to make ends meet. Since the start of Russia’s war in Ukraine, Zimbabwe’s inflation rate has shot up from 66% to more than 130%, according to official statistics. The war is blamed for rising fuel and food prices.

The war in Ukraine has exacerbated inflation around the world. Consumer prices in the 19 European Union countries that use the euro currency surged 8.1% in May, a record rate as energy and food costs climbed. In the U.S. and the United Kingdom, annual inflation hit or was close to 40-year highs of 8.3% and 9%, respectively, in April. Turkey approached Zimbabwe’s eye-watering prices, with inflation reaching 73.5% in May, the highest in 24 years.

In Zimbabwe, the impact of the Ukraine war is heaping problems on its fragile economy. The war “coupled with our historical domestic imbalances, has created challenges in terms of economic instability seen through the currency volatility and spilling over into price volatility,” Finance Minister Mthuli Ncube told Parliament in May.

Teachers “can no longer afford bread and other basics, this is too much,” tweeted the Progressive Teachers Union of Zimbabwe in early June. The three largest teachers’ unions are demanding the government pay their salaries in U.S. dollars because their pay in local currency is “eroded overnight.”

“Because of high inflation, the local currency is collapsing,” economic analyst Prosper Chitambara told The Associated Press. “Individuals and companies no longer trust the local currency and that has put pressure on the demand for U.S. dollars. The Ukraine war is simply exacerbating an already difficult situation.”

Many fear Zimbabwe could return to the hyperinflation of 2008, which was estimated at 500 billion percent, according to the International Monetary Fund. At that time, plastic bags full of 100 trillion Zimbabwe dollar banknotes were not enough to buy basic groceries.

The economic catastrophe forced then-President Robert Mugabe to form a “unity government” with the opposition and adopt a multi-currency system in 2009 in which US dollars and the South African rand were accepted as legal tender.

The U.S. dollar continues to dominate with prices in local currency often benchmarked to the rates for the American currency on the flourishing illegal market, where most individuals and companies get their foreign currency.

Across the country, currency traders line the streets and crowd entrances to shopping centers waving wads of both the local currency and U.S dollars.

Many Zimbabweans who earn in local currency such as government workers are forced to source dollars on the illegal market, where exchange rates are soaring, to pay for goods and services that are increasingly being charged in U.S. dollars.

Retailers said the rising rates for U.S. dollars on the illegal market are forcing them to frequently increase prices, often every few days, to allow them to restock.

The once-prosperous southern African country’s economy is battered by years of de-industrialization, corruption, low investment, low exports and high debt. Zimbabwe struggles to generate an adequate inflow of greenbacks needed for its largely dollarized local economy.

Ordinary Zimbabweans are returning to coping mechanisms they relied on during the hyperinflationary era such as skipping meals. Others now buy food items in smaller quantities, sometimes in such tiny packages they are enough for just a single meal. Locals call them “tsaona,” meaning “accident” in the local Shona language.

Promising better days ahead, Ncube, the finance minister, said the government “will not hesitate to act and intervene to cushion against price increases and exchange rate volatility.”

Many are skeptical of such vows from the government, saying nothing short of a miracle will pull Zimbabwe out of its economic crisis. Even while coping with constantly rising prices, many can’t help making grim jokes about the situation.

“I still have all my toes intact but it wouldn’t hurt selling one,” chuckled Harare resident Asani Sibanda. “I could still walk without it, but my family would at least get some food.”
…

WASHINGTON – U.S. consumer prices accelerated in May as gasoline prices hit a record high and the cost of food soared, leading to the largest annual increase in nearly 40 1/2 years, suggesting that the Federal Reserve could continue with its 50 basis points interest rate hikes through September to combat inflation.

The faster-than-expected increase in inflation last month reported by the Labor Department on Friday also reflected a surge in rents, which increased by the most since 1990. The relentless price pressures are forcing Americans to change their spending habits and will certainly heighten fears of either an outright recession or period of very slow growth.

High inflation also poses a political risk for President Joe Biden and his Democratic Party heading into the mid-term elections in November.

“There’s little respite from four-decade high inflation until energy and food costs simmer down and excess demand pressures abate in response to tighter monetary policy,” said

Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “The Fed might still raise policy rates ‘just’ 50 basis points next week, but it could easily ratchet up the pace beyond then if inflation keeps surprising to the high side.”

The consumer price index increased 1.0% last month after gaining 0.3% in April.

Gasoline prices rebounded 4.1% after falling 6.1% in April. Prices at the pump shot up in May, averaging around $4.37 per gallon, according to data from AAA. They were flirting with $5 per gallon on Friday, indicating that the monthly CPI would remain elevated in June.

Food prices jumped 1.2%. Prices of dairy and related products rose 2.9%, the largest gain since July 2007. Food prices have soared following Russia’s unprovoked war against Ukraine.

China’s zero COVID-19 policy, which dislocated supply chains, is also seen keeping goods prices strong.

Economists polled by Reuters had forecast the monthly CPI picking up 0.7%. In the 12 months through May, the CPI increased 8.6%. That was the largest year-on-year increase since December 1981 and followed an 8.3% advance in April. Economists had hoped the annual CPI rate peaked in April.

The inflation report was published ahead of an anticipated second 50 basis points rate hike from the Fed next Wednesday.

The U.S. central bank is expected to raise its policy interest rate by an additional half a percentage point in July. It has hiked the overnight rate by 75 basis points since March.

U.S. stocks opened lower. The dollar rose against a basket of currencies. U.S. Treasury prices were mixed.

Strong underlying inflation 

Underlying inflation was equally strong last month as prices for services like rents, hotel accommodation and airline travel maintained their upward push. There had been hope that the shift in spending from goods to services would help to cool inflation.

But a tight labor market is driving up wages, contributing to higher prices for services.

Excluding the volatile food and energy components, the CPI climbed 0.6% after advancing by the same margin in April.

The so-called core CPI increased 6.0% in the 12-months through May. That followed a 6.2% rise in April. Inflation by all measures has far exceeded the Fed’s 2% target.

The core CPI was lifted by rents, with owners’ equivalent rent of primary residence, which is what a homeowner would receive from renting a home, rising a solid 0.6%. That was the largest increase since August 1990.

Airline fares increased 12.6% after surging 18.6% in April. Used cars and trucks prices rebounded 1.8% after declining for three straight months. New motor vehicle prices rose a solid 1.0%, while the cost of medical care increased 0.4%.

Consumers also paid more for household furnishings and operations as well as recreation. Apparel prices rose 0.7%. There were also increases in the cost of motor vehicle insurance, personal care, education and tobacco.
…

India’s surprise decision to ban wheat exports has raised concerns about potential curbs on rice exports as well, prompting rice traders to step up purchases and place atypical orders for longer-dated deliveries.

Government and trade officials have said India, the world’s biggest exporter of rice, does not plan to curb shipments for now, as local prices remain low and state warehouses hold ample supplies.

That’s a relief for import-dependent countries already grappling with surging food costs, but most of India’s rice growing season lies ahead and any change in prospects for the harvest could alter its stance on exports of the staple grain.

Monsoon rains determine the size of India’s rice crop, and plentiful rains this year would help it maintain its preeminent position in the global rice trade.

Patchy monsoon rains, however, would stunt the crop and cut yields and that might lead to a drawdown in state inventories that would trigger export curbs to ensure sufficient supplies for the country’s 1.4 billion people.

Why is India so crucial for global rice supplies?

India’s rice exports touched a record 21.5 million tonnes in 2021, more than the combined shipments of the world’s next four biggest exporters of the grain: Thailand, Vietnam, Pakistan and the United States.

India, the world’s biggest rice consumer after China, has a market share of more than 40% of the global rice trade.

High domestic stocks and low local prices allowed India to offer rice at deep discounts over the past two years, helping poorer nations, many in Asia and Africa, grapple with soaring wheat prices.

India exports rice to more than 150 countries, and any reduction in its shipments would fuel food inflation. The grain is a staple for more than 3 billion people, and when India banned exports in 2007, global prices shot to new peaks.

Who will suffer the most if India restricts rice exports?

Any move to restrict exports from India would hit almost every rice importing country. It would also allow rival suppliers Thailand and Vietnam to raise prices that are already more than 30% above Indian shipments.

Other than serving Asian buyers like China, Nepal, Bangladesh and the Philippines, India supplies rice to countries such as Togo, Benin, Senegal and Cameroon.

What’s the role of India’s monsoon?

India’s summer-sown rice accounts for more than 85% of the country’s annual production, which jumped to a record 129.66 million tonnes in the crop year to June 2022.

Millions of farmers start planting summer rice in June, when the monsoon lashes India. The monsoon, which delivers about 70% of India’s annual rainfall, is crucial for water-thirsty rice.

Indian farmers rely on monsoon rains to water half of the country’s farmland that lacks irrigation. In 2022, India is forecast to receive an average amount of rainfall. But since June 1, when the four-month monsoon season began, rains are 41% below average.

The rains are expected pick up by mid-June and spur the sowing of rice. Three years of average or above-average rains, and new, modern farming practices have ramped-up rice output.

Should the government worry about rice supplies?

India at present has more than sufficient stocks of rice, and local prices are lower than the state-set prices at which the government buys paddy rice from farmers.

Rice export prices are also trading near the lowest in more than five years.

Meanwhile, milled and paddy rice stocks at government granaries of 57.82 million tonnes are more than quadruple a target of 13.54 million tonnes.

Unlike for wheat, India did not see a surge in rice exports after Russia’s invasion of Ukraine in February, as the Black Sea region is not a major producer or consumer of rice.
…

Teslas with partially automated driving systems are a step closer to being recalled after the U.S. elevated its investigation into a series of crashes with parked emergency vehicles or trucks with warning signs. 

The National Highway Traffic Safety Administration said Thursday that it is upgrading the Tesla probe to an engineering analysis, a sign of increased scrutiny of the electric vehicle maker and automated systems that perform at least some driving tasks. 

Documents posted Thursday by the agency raise some serious issues about Tesla’s Autopilot system. The agency found that it’s being used in areas where its capabilities are limited, and that many drivers aren’t taking action to avoid crashes despite warnings from the vehicle. 

The probe now covers 830,000 vehicles, almost everything that the Austin, Texas, carmaker has sold in the U.S. since the start of the 2014 model year. 

NHTSA reported that it has found 16 crashes into emergency vehicles and trucks with warning signs, causing 15 injuries and one death. 

Investigators will evaluate additional data, vehicle performance and “explore the degree to which Autopilot and associated Tesla systems may exacerbate human factors or behavioral safety risks, undermining the effectiveness of the driver’s supervision,” the agency said. 

A message was left Thursday seeking comment from Tesla.

tesla 

An engineering analysis is the final stage of an investigation, and in most cases the NHTSA decides within a year if there should be a recall or if the probe should be closed. 

In the majority of the 16 crashes, the Teslas issued collision alerts to the drivers just before impact. Automatic emergency braking intervened to at least slow the cars in about half the cases. On average, Autopilot gave up control of the Teslas less than a second before the crash, NHTSA said in documents detailing the probe. 

NHTSA also said it’s looking into crashes involving similar patterns that did not include emergency vehicles or trucks with warning signs. 

The agency found that in many cases, drivers had their hands on the steering wheel as Tesla requires, yet they failed to take action to avoid a crash. This suggests that drivers are complying with Tesla’s monitoring system, but it doesn’t make sure they’re paying attention. 

In crashes were video is available, drivers should have seen first responder vehicles an average of eight seconds before impact, the agency wrote. 

The agency will have to decide if there is a safety defect with Autopilot before pursuing a recall. 

Investigators also wrote that a driver’s use or misuse of the driver monitoring system “or operation of a vehicle in an unintended manner does not necessarily preclude a system defect.” 

The agency document all but says Tesla’s method of making sure drivers pay attention isn’t good enough, and that it’s defective and should be recalled, said Bryant Walker Smith, a University of South Carolina law professor who studies automated vehicles. 

“It is really easy to have a hand on the wheel and be completely disengaged from driving,” he said. Monitoring a driver’s hand position is not effective because it only measures a physical position. “It is not concerned with their mental capacity, their engagement or their ability to respond,” he said. 

Similar systems from other companies such as General Motors’ Super Cruise use infrared cameras to watch a driver’s eyes or face to ensure they’re looking forward. But even these may still allow a driver to zone out, Walker Smith said. 

In total, the agency looked at 191 crashes but removed 85 of them because other drivers were involved or there wasn’t enough information to do a definite assessment. Of the remaining 106, the main cause of about one-quarter of the crashes appears to be running Autopilot in areas where it has limitations, or in conditions that can interfere with its operations. 

Other automakers limit use of their systems to limited-access divided highways. 

In a statement, NHTSA said there aren’t any vehicles available for purchase today that can drive themselves. 

“Every available vehicle requires the human driver to be in control at all times, and all state laws hold the human driver responsible for operation of their vehicles,” the agency said. 

Driver-assist systems can help avoid crashes but must be used correctly and responsibly, the agency said. 

Tesla did an online update of Autopilot software last fall to improve camera detection of emergency vehicle lights in low-light conditions. NHTSA has asked why the company didn’t do a recall. 

NHTSA began its inquiry in August of last year after a string of crashes since 2018 in which Teslas using the company’s Autopilot or Traffic Aware Cruise Control systems hit vehicles at scenes where first responders used flashing lights, flares, an illuminated arrow board, or cones warning of hazards. 

 
…

U.N. economists are warning that the war in Ukraine threatens to upend last year’s recovery of foreign direct investment to pre-pandemic levels and send global investment flows spiraling downward in 2022. UNCTAD, the U.N. Conference on Trade and Development, has just launched its World Investment Report 2022. 

Multiple global crises have seriously dimmed prospects for sustaining last year’s strong recovery, which saw global FDI, or foreign direct investment, reach nearly $1.6 trillion. That is an increase of almost 70% from the exceptionally low levels during the 2020 pandemic year.

UNCTAD Secretary-General Rebeca Grynspan says climate change, the pandemic and the war in Ukraine have dramatically changed the global environment for international business in the last three months.

She says multinational corporate investors are facing a year of uncertainties.

“Global value chains are greatly disrupted, consumers are worried, and interest rates are rising. Fears of a recession are high, and rising investor uncertainty will put significant downward pressures on global foreign direct investment in 2022,” she said.

The report notes last year’s recovery benefited all regions of the world. However, developed economies fared much better than those in the developing world. It says FDI flows rose 134% in developed countries, reaching $746 billion, more than double the 2020 level.

Grynspan says multinational companies raked in record profits, mainly from booming merger and acquisition transactions.

“Overall, FDI flows to developing economies grew much more slowly than those to developed regions, but still increased by 30%. The increase was mainly the result of strong growth performance in Asia, a partial recovery in Latin America and the Caribbean, and an uptick in Africa,” she said.

The United States, China, Hong Kong, Singapore, and Canada head the list of top 10 economies for FDI inflows in 2021.

UNCTAD economists say the growth momentum generated in 2021 cannot be sustained. They say global FDI flows this year likely will move on a downward trajectory or remain flat.

They warn FDI flows to developing countries in 2022 are expected to be strongly affected by the war in Ukraine. They say the fiscal space in many countries will be significantly reduced. They add governments, especially in oil-and food-importing developing economies, will have fewer resources to spend on so-called greenfield or new projects.
…

Even before the COVID-19 pandemic, Kenyan companies that unload freight ships and transport cargo faced growing competition from international shippers. Now, workers unions say unless steps are taken to protect local businesses an estimated 1,000 firms and 10,000 jobs may be lost. Juma Majanga reports from the port of Mombasa, Kenya.
Videographer: Amos Wangwa
…