FirstFT: Policymakers face biggest challenge for decades

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Good morning.

Central bankers face a more challenging economic landscape than they have experienced in decades and will find it harder to root out high inflation, top officials and monetary policymakers have warned.

The world’s leading economic authorities this weekend sounded the alarm about the forces working against the Federal Reserve, European Central Bank and other central banks as they try to combat the worst inflation in decades.

“At least over the next five years, monetary policymaking is going to be much more challenging than it was in the two decades before the pandemic struck,” Gita Gopinath, the IMF’s deputy managing director, told the Financial Times in an interview at Jackson Hole , Wyoming.

“We are in an environment where supply shocks are going to be more volatile than we’ve been used to, and that’s going to generate more costly trade-offs for monetary policy,” she said.

Jay Powell on Friday delivered his most hawkish message to date on the US central bank’s determination to tame surging inflation by raising interest rates.

In the hotly anticipated address, the Fed chair said successfully reducing inflation would probably result in lower economic growth for “a sustained period”.

  • Opinion: Powell’s speech was a chance to address the policy errors of the past 18 months, try to realign monetary policy expectations and establish a path for resetting the Fed’s monetary policy framework. In the event, Mohamed El-Erian writes, his short speech left much unsaid.

Thanks for reading FirstFT Americas. Have a great week — Gordon

1. Tempers flare in Brazil’s first presidential TV debate Jair Bolsonaro accused his main election challenger Luiz Inácio Lula da Silva of overseeing “the most corrupt government in Brazil’s history” in the first televised debate of the country’s presidential election campaign. Lula, a leftwing ex-president who is leading most opinion polls in the run-up to the October 2 ballot, countered by accusing the far-right incumbent of “destroying the country”.

2. US intelligence to examine documents seized from Donald Trump The US director of national intelligence has told members of Congress that her office will lead a review into what FBI agents took from Mar-a-Lago as part of their investigation into whether the former president broke the law in his handling of those documents. Government lawyers have until Tuesday to give a fuller account to the courts of what they recovered in the search, as both sides gear up for another week of legal proceedings.

3. Singapore to tighten retail access to cryptocurrencies Singapore’s financial regulator has announced it will further restrict retail investor access to digital currencies after a series of scandals in the city state. Ravi Menon, managing director of Singapore’s monetary authority, said in a speech today that cryptocurrencies are not a “viable form of money or investment asset” owing to their extreme price volatility.

4. EU set to suspend visa travel agreement with Russia EU foreign ministers are this week set to back suspending the bloc’s visa facilitation agreement with Moscow in an effort to curb the number of travel permits issued after some eastern member states threatened to unilaterally close their borders to Russian tourists.

5. China and Russia join forces for Vostok military exercises In a sign of Moscow’s deepening ties with Beijing and of the Kremlin’s desire to project a “business as usual” image despite the mounting costs of its war in Ukraine, Russia and China will embark on a series of military exercises this week. The Russian and Chinese troops will be joined by forces from non-western allies including Belarus and India.

The day ahead

Outlook for stocks Global stocks fell, Treasury yields climbed and global currencies lost ground against the dollar today following the hawkish comments from Jay Powell on Friday. Moreover bets against the euro have risen to the highest level since the pandemic hit Europe more than two years ago.

Nasa launch Bad weather and a fuel leak has not stopped the countdown to the launch of NASA’s huge Space Launch System rocket from the Kennedy Space Center in Florida. It is the first flight for NASA’s Artemis program that is capable of carrying humans to the Moon. Watch a live stream here. (FT, NASA)

What else we’re reading

Everyone pays the cost as the rich keep spending Rana Foroohar was shocked at paying $800 for a single shopping cart of groceries in the Hamptons on a recent holiday. She says people like her are not cutting back on spending and that may be an important and under-explored factor driving the inflation felt by all.

No country for young men in Silicon Valley For decades, very young company founders have brought to bear the innovation, disruption and vision that the tech sector prides itself on. But the next generation of youthful prodigies hasn’t arrived, which reflects both shifting American demographics and the new landscape of the industry.

Can web3 help get us to net zero? A mass of tech ventures are exploring how to fuse concerns about global warming with the public’s interest in web3 technology. From the mundane to the outlandish and wacky, these projects are promising variously to “green” bitcoin, make NFTs sustainable and solve niggling problems in carbon markets once and for all. Can they work?

Boom chief fights supersonic travel headwinds The makers of Overture have claimed they can cut flight times from New York to London from 6.5 hours to 3.5 hours, while Tokyo to Seattle would drop to 4.5 hours from 8.5 hours. But the absence of an engine-maker for the supersonic jet is one of several factors fueling aviation industry doubts about the claims.

Liz Truss’s not-so-special relationship Britain’s foreign secretary, on the cusp of becoming prime minister, has at times irked US officials with a not-so-diplomatic style that has been described as blunt, binary and assertive. Some say Truss is quick to take maximalist positions without thinking of the consequences.

Europe’s port cities vs the cruise ship Cruises are back on the holiday agenda after a two-year slowdown. But while demand is approaching pre-pandemic levels, residents and politicians in the cities where cruise enthusiasts step ashore have not all welcomed them back with open arms.

reader feedback

Last week I asked you to share your views on Joe Biden’s proposal to forgive student debt for millions of Americans. Here are a couple of the responses I received.

Student debt relief that targets lower-income teachers, police, nurses, etc. is a very good compromise. It splits the difference between those who want full relief for everyone, and those who want no relief for anyone. Both are too extreme, and extremism does not make good public policy — Andrew Elk, Atlanta, Georgia.

Why is no one addressing the elephant in the room, that is, the long-term excessive increases in the cost of higher education? Many universities now have endowments worth billions and few of them (Grinnell College in Iowa is a notable exception) use these funds to significantly limit the growth in the costs that they pass on to vulnerable students and their parents. President Biden’s order will only incentivize these institutions to continue to raise their tuition and fees — Steve Benton, Golden Valley, Minnesota.

Thanks to all those readers who replied. Please keep your emails coming and let me know what you think of this newsletter and any thoughts you have about future coverage — Gordon.

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