Recession’s the Word

Federal Reserve officials gave their clearest signal yet that they’re willing to tolerate a recession as the necessary trade-off for regaining control of inflation. Policy makers, criticized for being too late to realize the scale of the US inflation problem, are moving aggressively to catch up. They raised interest rates by 75 basis points on Wednesday for the third time in a row and forecast a further 1.25 percentage points of tightening before year end. Chair Jerome Powell repeatedly spoke of the painful slowdown that’s needed to curb price pressures running at the highest levels since the 1980s.

Condemning Russia

The US and its allies got a new chance to cast Vladimir Putin as a pariah isolated on the global stage with this week’s gathering of world leaders in New York, even as the United Nations has failed to stop or even curb Russia’s war in Ukraine. In speech after speech, leaders appearing before the General Assembly condemned Russia’s invasion of its neighbor. The big question is whether the condemnation will matter and whether some nations reluctant to choose sides will turn words into action, especially as Putin renewed his warnings of a nuclear threat.

BOE’s Turn Now

The Bank of England on Thursday is set to raise interest rates and start selling assets built up during a decade-long stimulus program, a historic tightening of monetary policy designed to clamp down on inflation. Economists expect the UK central bank to lift its benchmark lending rate a half percentage point to 2.25% and confirm plans to sell more of the £895 billion ($1 trillion) of bonds acquired during the quantitative-easing program. Investors see a strong chance of a three-quarter-point increase. Officials led by Governor Andrew Bailey have said they’ll act “forcefully” to prevent inflation from seeping into expectations that wages prices will keep rising.

Taming Energy Markets

The European Union’s executive arm plans to outline further actions to contain an unprecedented energy crunch by reducing markets swings, boosting liquidity and lowering natural gas costs. The European Commission aims to publish Sept. 28 a document detailing future steps to ease volatility and increase trading volume in energy markets as surging prices have made for ballooning margin calls, according to people with knowledge of the matter. But while some member states are calling for capping the price of gas, the Commission isn’t planning to propose any regulation next week and may instead elaborate on a range of ways to address the issue.

Coming Up…

European equity futures are pointing to a weak start as Asian share-price declines deepened Thursday after after the Fed hiked interest rates, diminishing the odds of a soft economic landing. The Bank of England and the Swiss National Bank are set to reveal their latest interest rate decisions. Other data due include France business confidence and Norway unemployment. Among expected earnings updates are releases by Halma, JD Sports, SUSE and Alten.

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(Source: Bloomberg, Sept. 22-2022)