US Business

While there are some signs that global and domestic inflation pressures are easing, high prices have spread, making it harder to quell quickly, a top US central banker said Monday.

Continued strong demand for goods and for workers will keep pressure on inflation — which has hit the highest in 40 years — New York Federal Reserve Bank President John Williams said.

“This is resulting in broad-based inflation, which will take longer to bring down,” he said.

Prices soared over the past year in part due to worldwide supply chain snags, creating shortages of key components like computer chips needed for cars and electronics.

Those issues have been exacerbated by zero-Covid policies in China and the Russian invasion of Ukraine that sent food and energy prices surging.

Those supply constraints are easing, while rising interest rates are cooling demand, helping to bring down prices of many commodities like lumber, which should lower inflation, Williams said in a speech to the US Hispanic Chamber of Commerce National Conference in Phoenix, Arizona.

“Unfortunately, that’s it for the good news on inflation,” he said, warning that those factors “will not be enough by themselves to bring inflation back to our two percent objective.”

The Fed has moved aggressively this year to tamp down demand to help drive prices lower, hiking interest rates five times, for a total of three percentage points. And the central bank has said more increases are coming this year.

“From Main Street to Wall Street … inflation is the No. 1 concern,” Williams said, adding, “our job is not yet done.”

Even as supply issues improve, “demand for durable goods remains very high  — beyond what can be produced and brought to market,” while “demand for labor and services is far outstripping available supply.”

Still, he said he expects the aggressive Fed moves, along with similar steps by other major central banks, will help to restore balance globally.

Williams said “the combination of cooling global demand and steady improvements in supply … should contribute to inflation declining to about three percent next year.”

The Fed’s preferred index showed annual inflation slowed to 6.2 percent in August, from the 7.0 percent peak in June.

Williams said he expects US economic growth to be close to flat this year and post modest growth in 2023, with a slight uptick in unemployment.

Credit Suisse shares plunged to new lows Monday, spurring swelling fears and even suggestions the bank could face a “Lehman Brothers moment”, despite expert assurances it is too big to fail.

Switzerland’s second-largest bank saw its share price sink 11.5 percent to a historic low of 3.518 Swiss francs ($3.563) a pop, after a new salvo of rumours surrounding the scandal-plagued bank.

The Bank of England is in touch with Swiss authorities to monitor Credit Suisse, British newspaper The Sunday Telegraph reported.

And the Financial Times daily said that senior executives have sought to reassure big clients and investors in recent days about the bank’s liquidity and capital position due to concerns raised about its financial strength.

Credit Suisse chief executive Ulrich Koerner, who only took the reins and the mammoth task of revitalising the bank in August, meanwhile sent an internal message to staff on Friday to ease their concerns.

In it, he warned there were “many factually inaccurate statements being made” about the bank.

It remains unclear if his memo helped calm the nerves of Credit Suisse employees, but it appears to have drawn more attention to the dramatic swings in the bank’s share price in recent weeks, and caused further jitters among investors.

– ‘Transformation plans’ –

Fears surrounding the “transformation plans” which Koerner is due to present on October 27 have been sending the bank’s shares into a tailspin, adding to its woes after two years of repeated scandals and crises.

The bank was especially rocked by the collapse last year of the British financial firm Greensill, in which some $10 billion had been committed through four funds, and then by the implosion of the US fund Archegos, which cost it more than $5 billion.

Since March 2021, Credit Suisse’s shares have lost 70 percent of their value.

Credit Suisse shares, listed on the Swiss stock exchange’s main SMI index, recovered most of their drop suffered in Monday morning trading to close the day down 0.9 percent at 3.94 Swiss francs.

As an indication of the growing concern, the price of so-called credit default swaps, or CDS, on the bank’s bonds suddenly surged last week.

These derivative financial products tend to be taken out by investors to protect against a payment default — a deteriorating view of the Credit Suisse’s creditworthiness.

The swaps now price in a roughly 23-percent chance that the bank defaults on its bonds within five years, according to Bloomberg News, which stresses nonetheless that they remain “far from distressed”.

– ‘Lehman Brothers moment’? –

Social media is meanwhile abuzz with discussions over a looming “Lehman Brothers moment”, referring to the giant US investment bank’s spectacular collapse which kicked off the 2008 global financial crisis.

Many observers however insist there is little risk of a Credit Suisse implosion.

“Is it possible?” Ipek Ozkardeskaya, a Swissquote analyst, asked in a note.

“Yes, it is possible, but it is highly unlikely.”

Credit Suisse figures among the banks worldwide that were labelled “too big to fail” after the Lehman Brothers debacle and were required to put aside large amounts of capital to ensure they could withstand future crises without affecting the rest of the banking sector.

Ozkardeskaya envisages three scenarios, including the bank’s new chief pulling off “a miracle” and quickly strengthening Credit Suisse as promised, “and the bank survives and thrives until the next scandal”.

A second scenario involves the Zurich-based bank becoming “a nice takeover target, and (getting) eaten by another bank,” while the third sees it “saved by the Swiss government.”

– ‘Buy time’ –

So far, the bank has provided no insight into the details of the coming “transformation plans”, beyond suggesting that it could include asset sales.

But even these few details have sparked concerns, with Jefferies analysts warning that “asset sales alone are unlikely to be the solution to the potential capital shortfall problem.”

Credit Suisse in this case would be “a forced seller”, they wrote in a note, pointing out that this could “create price pressure”. 

And while selling assets might “generate capital”, they warned it could also “reduce future earnings generation capacity”.

But asset sales could, the note acknowledged, “be a first step and buy time until shares recover and the outlook gets better.”

In his memo to staff Friday, Koerner meanwhile insisted on the “strong capital base and liquidity position of the bank.”

“We are in the process of reshaping Credit Suisse for a long-term, sustainable future — with significant potential for value creation,” he wrote.

Swedish paleogeneticist Svante Paabo, who sequenced the genome of the Neanderthal and discovered the previously unknown hominin Denisova, on Monday won the Nobel Medicine Prize.

Paabo’s research gave rise to an entirely new scientific discipline called paleogenomics, and has “generated new understanding of our evolutionary history”, the Nobel committee said.

“By revealing genetic differences that distinguish all living humans from extinct hominins, his discoveries provide the basis for exploring what makes us uniquely human,” it said in a statement.

Paabo — the founder and director of the department of genetics at the Max Planck Institute for Evolutionary Anthropology in Leipzig — found that gene transfer had occurred from these now extinct hominins to Homo sapiens following the migration out of Africa around 70,000 years ago.

“This ancient flow of genes to present-day humans has physiological relevance today, for example affecting how our immune system reacts to infections,” the jury said.

One such example is that Covid-19 patients with a snippet of Neanderthal DNA run a higher risk of severe complications from the disease, Paabo found in a 2020 study.

Paabo told reporters he was surprised when the committee called to tell him he had won.

“At first I thought this is probably an elaborate prank done by people in my (research) group. But then it sounded a little bit too serious to me so I sort of accepted the fact”, he said.

Paabo, 67, takes home the award sum of 10 million kronor ($901,500).

He is the son of Sune Bergstrom, a Swede who won the 1982 Nobel Medicine Prize for discovering prostaglandins — biochemical compounds that influence blood pressure, body temperature, allergic reactions and other physiological phenomena.

In his 2014 memoir “Neanderthal Man: In Search of Lost Genomes”, Paabo wrote that he was conceived as a result of a secret extra-marital affair.

He later told The Guardian outlet that Bergstrom’s “official” family knew nothing of his or his mother’s existence, the Estonian chemist Karin Paabo, until 2005 after Bergstrom’s death.

Paabo also wrote in his memoir that he “had always thought of myself as gay” until he met the woman who would become his wife, primatologist Linda Vigilant, who also works at the Max Planck Institute. He now identifies as bisexual.

– Achieved ‘the seemingly impossible’ –

Homo sapiens are known to have first appeared in Africa around 300,000 years ago. 

Our closest known relatives, Neanderthals, developed outside Africa and populated Europe and Western Asia from around 400,000 to 30,000 years ago, when they became extinct.

That means that about 70,000 years ago, groups of Homo sapiens and Neanderthals coexisted in large parts of Eurasia for tens of thousands of years.

“The last 40,000 years is quite unique in human history in that we are the only form of humans around. Until that time there were almost always other types of humans that existed”, Paabo told the Nobel website.

In order to study the relationship between present-day humans and extinct Neanderthals, DNA needed to be sequenced from archaic specimens with only trace amounts of DNA left after thousands of years.

In 1990, Paabo managed to sequence a bit of mitochondrial DNA from a 40,000-year-old piece of bone.

“For the first time, we had access to a sequence from an extinct relative”, the Nobel jury said.

Comparisons with contemporary humans and chimpanzees showed that Neanderthals were genetically distinct.

Paabo then “accomplished the seemingly impossible”, the committee said, when he published the first Neanderthal genome sequence in 2010.

It showed that the most recent common ancestor of Neanderthals and Homo sapiens lived around 800,000 years ago. 

Paabo and his team were able to show that DNA sequences from Neanderthals were more similar to those from contemporary humans originating from Europe or Asia than those from Africa.

“This means that Neanderthals and Homo sapiens interbred during their millennia of coexistence,” the Nobel jury said.

In modern day humans with European or Asian descent, around one to four percent of the genome originates from Neanderthals.

– New addition to family tree –

In 2008, Paabo and his team went on to sequence a 40,000-year-old bone fragment found in the Denisova cave in southern Siberia. 

It contained exceptionally well-preserved DNA.

“The results caused a sensation — the DNA sequence was unique when compared to all known sequences from Neanderthals and present-day humans,” the Nobel jury said.

Paabo had discovered a previously unknown hominin, given the name Denisova.

Comparisons showed the gene flow had also occurred between Denisovans and Homo sapiens.

In the same cave, palaeontologists later discovered the fossil of a young girl who was part Neanderthal, part Denisovan, proving the two species interbred.

Paabo’s research proved that when Homo sapiens migrated out of Africa, at least two extinct hominin populations inhabited Eurasia — Neanderthals in western Eurasia, and Denisovans in the eastern parts.

The US Supreme Court, in a decision with potentially far-reaching ramifications, agreed on Monday to hear two cases challenging the legal immunity of internet companies from liability for content posted by their users.

One of the cases accepted by the court was filed by the family of Nohemi Gonzalez, a 23-year-old American who was one of the 130 people killed in the November 2015 Islamic State attacks in Paris.

The complaint alleges that Google violated the US Anti-Terrorism Act by recommending IS videos that incited violence on Google-owned YouTube.

“Google’s services have played a uniquely essential role in the development of IS’s image, its success in recruiting members from around the world, and its ability to carry out attacks,” according to the complaint. 

Under Section 230 of the 1996 Communications Decency Act, social media companies such as Google, Facebook and Twitter are not considered to be publishers and are not legally liable for content posted by their users.

A lower court ruled in the Gonzalez case that Google enjoyed legal protection under Section 230, which its backers claim is essential to protecting freedom of expression on the internet.

Section 230 has come under attack, however, from both Democratic and Republican lawmakers, with the left claiming tech companies are promoting far-right hate speech and the right alleging it allows the firms censor conservative voices.

Among those who have been critical of Section 230 is former Republican president Donald Trump, who was banned from both Twitter and Facebook after the January 6, 2021 attack on the Capitol by his supporters.

The other related case accepted by the Supreme Court involves a lawsuit accusing Twitter of abetting terrorism in which a lower court declined to rule whether the messaging service enjoys a legal shield under Section 230.

Britain’s under-fire finance minister Kwasi Kwarteng on Monday vowed to press on with his controversial economic reform plans, despite announcing a dramatic U-turn on a controversial tax cut for high earners.

The proposed cut was part of a debt-driven economic package that has bombed with the markets, the electorate and much of the ruling Conservative party.

The abrupt reversal raised questions about his and Prime Minister Liz Truss’s right-wing policy agenda, less than a month after taking power and a day after both vowed to stay the course.

“What a day. It has been tough,” Kwarteng said in a speech to the Tories’ annual conference in Birmingham, central England.

But he told delegates that “we need to focus on the task in hand”, implicitly criticising his Tory predecessors by saying there was a need to boost the economy out of its “slow, managed decline”.

“To grow the economy we really do need to do things differently,” he said.

Kwarteng pointedly avoided any specific mention of his about-face on the proposed scrapping of the 45 percent top rate of income tax.

But he insisted his and Truss’s contentious plans, which include axing a cap on bankers’ bonuses and reversing a planned rise in corporation tax, as well as a recent hike in national insurance contributions, were “sound” and “credible”.

“It will increase growth,” he added in the speech, which was delayed by an unspecified security alert at the venue. Police lifted the alert about an hour later.

– Political storm –

Earlier, Kwarteng said he had never considered resigning over the furore caused by the proposals, saying only that the decision to drop the tax cut was because it had become a “distraction”.

On the markets, the intention to pay for the cuts with billions more in extra borrowing had sent the pound tumbling to a record low against the dollar and UK government bond yields soaring.

The pound rebounded Monday as the government partially reversed course. 

Nevertheless, Kwarteng and Truss remain in the eye of a political storm, given the perceived unfairness of the package, which could yet see cuts to spending and benefits amid Britain’s worst cost-of-living crisis in generations.

As late as Sunday, the finance chief had been due to tell the conference that “we must stay the course”, according to a preview of his speech released by the Conservatives.

Truss on Sunday admitted communication errors in how the September 23 economic package had been presented, but agreed she was “absolutely committed” to abolishing the top tax rate. 

Within 24 hours, though, the 47-year-old prime minister — only in the role since September 6 — had performed one of most striking government U-turns in recent memory.

Truss told the BBC she had not discussed axing the high-earners’ tax band with her cabinet, who only seemed to learn of the reversal along with the public on Monday.

She also appeared to distance herself from the move by claiming “it was a decision that the chancellor made”, but her spokesman downplayed the comments.

“The prime minister was clear that… fiscal events are the responsibility of the chancellor — that’s all she was setting clear,” he told reporters Monday.

Out of a total tax package worth £45 billion ($50 billion), the top rate cut would have cost some £2 billion — relatively small, but outsized for its political impact.

Tory MPs who backed former finance minister Rishi Sunak — Truss’s rival in the recent Tory leadership race — had threatened to vote it down, raising the prospect of a major battle in the House of Commons.

Grant Shapps, who was refused a cabinet job by Truss, welcomed her scrapping the tax cut, which he told BBC radio had been planned with “grossly insensitive timing”.

– Credibility ‘destroyed’ –

With the U-turn, the stakes have soared for Truss as she prepares to close the party conference with a speech Wednesday.

A raft of polls have found Truss and her economic package deeply unpopular, alongside plummeting ratings for the Tories.

Some surveys showed Labour with mammoth leads of up to 33 points — its biggest since the heyday of its former prime minister Tony Blair in the late 1990s.

Labour’s finance spokeswoman Rachel Reeves said the climbdown “comes too late for the families who will pay higher mortgages and higher prices for years to come” following the recent market turmoil.

“The Tories have destroyed their economic credibility and damaged trust in the British economy,” she said.